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Will It Be Inflation Or Deflation? The Answer May Surprise You
Submitted by Michael Snyder of The Economic Collapse blog,
Is the coming financial collapse going to be inflationary or deflationary? Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country. Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation. Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts. So what is the truth? Well, for the reasons listed below, we believe that we will see both.
The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis. This will happen so quickly that many will get "financial whiplash" as they try to figure out what to do with their money. We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.
So why will we see deflation first? The following are some of the major deflationary forces that are affecting our economy right now...
The Velocity Of Money Is At A 50 Year Low
The rate at which money circulates in our economy is the lowest that it has been in more than 50 years. It has been steadily falling since the late 1990s, and this is a clear sign that economic activity is slowing down. The shaded areas in the chart represent recessions, and as you can see, the velocity of money always slows down during a recession. But even though the government is telling us that we are not in a recession right now, the velocity of money continues to drop like a rock. This is one of the factors that is putting a tremendous amount of deflationary pressure on our economy...
The Trade Deficit
Even single month, far more money leaves this country than comes into it. In fact, the amount going out exceeds the amount coming in by about half a trillion dollars each year. This is extremely deflationary. Our system is constantly bleeding cash, and this is one of the reasons why the federal government has felt a need to run such huge budget deficits and why the Federal Reserve has felt a need to print so much money. They are trying to pump money back into a system that is constantly bleeding massive amounts of cash. Since 1975, the amount of money leaving the United States has exceeded the amount of money coming into the country by more than 8 trillion dollars. The trade deficit is one of our biggest economic problems, and yet most Americans do not even understand what it is. As you can see below, our trade deficit really started getting bad in the late 1990s...
Wages And Salaries As A Percentage Of GDP
One of the primary drivers of inflation is consumer spending. But consumers cannot spend money if they do not have it. And right now, wages and salaries as a percentage of GDP are near a record low. This is a very deflationary state of affairs. The percentage of low paying jobs in the U.S. economy continues to increase, and we have witnessed an explosion in the ranks of the "working poor" in recent years. For consumer prices to rise significantly, more money is going to have to get into the hands of average American consumers first...
When The Debt Bubble Bursts
Right now, we are living in the greatest debt bubble in the history of the world. When a debt bubble bursts, fear and panic typically cause the flow of money and the flow of credit to really tighten up. We saw that happen at the beginning of the Great Depression of the 1930s, we saw that happen back in 2008, and we will see it happen again. Deleveraging is deflationary by nature, and it can cause economic activity to grind to a standstill very rapidly.
During the next major wave of the economic collapse, there will be times when it will seem like hardly anyone has any money. The "easy credit" of the past will be long gone, and large numbers of individuals and small businesses will find it very difficult to get loans.
When the debt bubble bursts, cash will be king - at least for a short period of time. Those that do not have any savings at all will really be hurting.
And some of the financial elite seem to be positioning themselves for what is coming. For example, even though he has been making public statements about how great stocks are right now, the truth is that Warren Buffett is currently sitting on $49 billion in cash. That is the most that he has ever had sitting in cash.
Does he know something?
Of course there will be a tremendous amount of pressure on the U.S. government and the Federal Reserve to do something once a financial crash happens. The response by the federal government and the Federal Reserve will likely be extremely inflationary as they try to resuscitate the system. It will probably be far more dramatic than anything we have seen so far.
So cash will not be king for long. In fact, eventually cash will be trash. The actions of the U.S. government and the Federal Reserve in response to the coming financial crisis will greatly upset much of the rest of the world and cause the death of the U.S. dollar.
That is why gold, silver and other hard assets are going to be so good to have in the long-term. In the short-term they will experience wild swings in price, but if you can handle the ride you will be smiling in the end.
In the coming years, we are going to experience both inflation and deflation, and neither one will be pleasant at all.
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Takes me back to the Aunt and Uncles Ranch. Taking a drink of the raw material with the layer of cream on top, before running it through the separator. Good stuff. No wonder they made it into their 90's!
Drink half and half, same thing
Simply stated: everything you need goes up, and everything you own goes down.
"The price of meat has just gone up and your old lady has just gone down." - FZ
Who you jivin' with that Cosmik Debris?
...take a drive to Beverly Hills just before dawn....
pretty much sums it up...+3
+ 1 i always think of it as, everything you need goes up, wants go down. Hyperinflation is inevitable, in my opinion since it means there is a loss of confidence in the currency being exchanged. the Japanese are still loyal, still confident, but, they soon won't be. i think watching japan will provide a pretty good indication of how it will go everywhere else. Wait, let me clarify, everywhere where there are printing presses.
I think everything depends on whether there are mass bank failures. There is nothing more deflationary than a semi-permanent bank holiday. If the only good cash is physical notes and coins, the value of that cash will soar to the moon. So, countries that have mass bank failures will have hyperdeflation first. Other countries could hyperinflate.
This is good .... I only own what I need and need what I own
This fits with my theory: Anything you compete with other countries to buy goes up, anything they can't/won't buy goes down. And one thing you compete to buy is your job, so it's price will go up, i.e. your salary will go down.
My belief has been that first we go through a fast wave of deflation. The people sitting in cash now hoping to scoop up precious metals when it happens are going to be bummed out because there won't be any physical available at the paper price. Once the crisis hits the response will blow up the dollar like a super nova.
Dr. E
we seem to be coming to the same vision, perhaps by different paths. Mine has been reading fofoa. What has formed yours?
Fofoa is one of the sites I like to read , I also like Mike Maloney, and Peter Schiff who actually got me looking at things differently. I would watch him get beat up on CNBC all the time, but every time I listened to him I thought... "Hey this guy's onto something".
Schiff got a lot of people going. the Widemers were my first awakening. I had never thought about money before reading Aftershock. Since I read it in April 2010 I have spend 4500 hours learning (well reading anyway.) This is going to be the biggest event in human history. In costs it will dwarf the world wars.
I agree. I probably spend to much time reading, studying , and prepping. But like you said it is going to be a major event and I don't want to be caught with my pants down.
Mental preparation alone will be priceless.
I don't think you get deflation in the advertised price. The current consumer retail apparatus won't allow it. In the face of falling demand most retailers raise prices first. Hoping to force the few customers that must have the product to pay more in order to keep revenue steady.
Deflation is not allowed in an economy dominated by the stock market. Everything must continue to inflate forever to maintain "growth".
Rather than reduce prices, the retailer will just mark the inventory as a loss to save on taxes. There are fewer clearance sales now than there was a few years ago. Like the housing market, inventory has been severely restricted in an attempt to keep prices high.
I do think it all cracks this year. But it won't matter what any corporation tries, a whole lot of people are just going to stop playing the game. They'll just get tired of it all and quit. You're starting to see it now. People are just not buying anything, they just don't care.
When I say a wave of deflation it will be in asset classes only. When it comes to tangibles they won't have the time to deflate before government policy kills the dollar.
Hyper-anything, whether inflation or deflation, is never even across products and asset classes. Even the relatively mild inflation of the 1970s was very uneven toward the end. A crash followed by a semi-permanent bank holiday will cause hyperdeflation. The only good cash will be physical cash. Once the political catfight is settled after a year or two, Congress could start minting large denomination coins in order to reflate the economy, and allow the FDIC to reimburse insured depositors. This could easily hyperinflate out of control.
Very rare do I post... special occasion. My poor grammer usually stops me. I feel like posting tonight. Certain things , like businesses, are short guests, people buying things. NO consumers, no sales, no profits! Groupon/ living social is the auction house for 2013+, selling the product for the lowest cost. It's rough, thank god I sell a product that eveybody wants, the experience, the desire, the alcohol! Deflation for certain things, inflation for other.... Gas, food, power, etc. Oh well, J in Vegas
You should post more often and tell the grammar-Nazis to get bent.
I agree with the raccoon. You should post more often. If the grammar police don't like it, that's their issue.
you spelled raccoon wrong !!! Its Racoon, Bitchez !!!
Stieg Heil!
nice one hulk. lol
Lotta funny smart asses on ZH. I'm not here for the articles anymore
Yeah, I know. I had to explain that to Master Bates (AKA: Johnny Bravo) about a hundred times.
It was intentional on my part so that there would be no luck in people searching for "Rocky Raccoon".
Sorry, Beatles fans.
Just throwing this out, I've read several similar scenarios where excessive money printing during massive deflation can result in hyperinflation.
http://seekingalpha.com/article/317449-how-today-s-deflation-can-turn-in...
Always enjoy your perspective, Dr. E.
Thank you , and thanks for the link.
I agree with your comments, but do live in fear of "the day that credit dies". Meaning cash sales only. Limited sales for metal or barter. That is almost unthinkable in the world we live in. But, the credit circulators are on overload. It won't take much to cause the system to break down. Few people have sufficient cash for one week's worth of necessitites. Pawn brokers will be open 25 hour per day until they run out of cash. Without credit, prices will collapse. You are describing "hyperdeflation", an event when the purchasing power of cash increases in value. While I have much metal, I do have cash. Just trying to cover all the bases.
In hyperdeflation, there could be huge political delays in FDIC payment to the depositors of failed banks. Issues like the debt ceiling and 1 (or both) political party trying to use the crisis to force side issues will cause indefinite delays. Banks will basicly shut down - indefinite bank holiday. If this happens, the only good cash is the cash you can hold in your hand. Without functioning banks, even US Gold Eagles might be worth just their face value of $50, and no one will take straight bullion at all, or at a huge discount..
Seems to me in a deflation, wouldn't folks be selling gold to generate precious cash? Am I missing something?
Agreed, but I think this will be a very brief window - perhaps wise to have some "extra" cash around for such purchases in addition to the day-to-day needs before the dollar goes "poof!" Timing it all, should it go down like this, will be a bitch though...
Greshams Law saws people will first use all their USD. Only if you are really really hard up, and tried bartering everything else, would you be thinking of paying with precious metals, during this stage.
The point of holding metals is to make it to the OTHER SIDE of this crisis. Hopefully. One day!
In Deflation ... gold goes down, equities go down, bonds down, down, down, in Northern Hemisphere clockwise, Southern counter-clockwise
@ Dr Engali :
A good analogy is the , Tsunami pictures in Asia first saw the beaches empty and then the waves came up into the cities There is little warning of approach; when a train of tsunami waves approaches a coastline, the first indication is often a sharp swell, not unlike an ordinary storm swell, followed by a sudden outrush of water that often exposes offshore areas as the first wave trough reaches the coast. After several minutes, the first huge wave crest strikes, inundating the newly exposed beach and rushing inland to flood the coast Quote from Free Online EncyclopediaIt really all depends on the asset class in question.
Is ammunition in inflation? Hell fucking yes, maybe even hyper-inflation
Food? Yes, unless you don't mind horse meat?
Bonds? We're going to see serious deflation here when the bubble bursts.
Equities? Same shit as bonds.
Things you need to survive will be extremely inflationary, government paper based entirely on faith and hope will drop like a stone.
My theory remains that the spectrum of inflation/deflation will follow along Maslow's Hierarchy of Needa. The most inflation in the things we need most - food, security, energy, and basic shelter. Increasingly deflationary behavior as you move up the pyramid, with most things related to self-actualization suffering massive deflation (art, wine, etc.).
I've always thought that that pyramid was somewhat upside-down.
In order to earn food, water, shelter, clothing, and other physical necessities one must first be creative and confident, be able to solve problems, and have close friends and family (still the best way to get a job).
hyper-in-deflation......................bullish
this article is totally ignorant of the current reality. it's called QUANTITATIVE EASING. Learn it, live it, love it. This whole "angels on the pins of a needle" really is tiresome. can't say i understand the math behind it...but i sure understand the HISTORY. Bernanke talked about it straight up: "Japan waited too long to implement it." that was his sales pitch in 2008..."we still have time, the market hasn't crashed yet"...and Paulson went for it. at first it looked like Dantes Divine Comedy to me http://en.wikipedia.org/wiki/Divine_Comedy PURE PHUCKING HELL. But then like some amazing lottery machine "this thing kicked in" and yields plunged, stocks soared, commodities got crushed and the economy at least felt like it bottomed. The Bernank then got luck with various global events all "conspiring" to make this policy far more successful than it otherwise should ever have been. people rip into the guy...even today...but not me. not anymore. this guy is a LION TAMER and while i think it would be foolish to get rid of QE at this point...on the other hand...amazingly..."he could just call it a success and start the process of HEALING." i think waiting to assess the damage of Japan will be critical...this is a market potentially on the verge of total collapse. this is a POLITICAL event however...nothing monetary authorities can do about it. as with Cyprus the Secretary of State will have to make sure that America's "good offices" stand ready in Japan's time of need...should it come to that. But not before you get a Battle Imperial within Japan itself.
I'm pretty sure Tyler is familiar with QE.
almost as familiar as the Tylers are with being totally wrong on what it means vis a vis making a killing in the market relative to it. the "melting of the gold core" is the last leg of the stool. Treasuries? through the roof. Equities? through the roof. Real estate? through the roof. Recovery? game on. it's my schtik, everyone here knows it...gone crazy in Treasury land just to rub it all in the faces of the schmucks. Still think "it's hyperinflation time in Japan" but i look forward to getting back into the equity game should a could correction be the result of a financial fukushima "and then finding my desert island...and a lady."
As in, the Employment rate cratered and never came back and 'normal' interest rates would instantly asphyxiate whatever is left?
Lion Tamer in his undies in the mirror maybe.
Destroyer of childrens' lives is more like it in reality.
Interest rate manipulation can ONLY distort, and in the extreme destroy, capital investment incentives.
Read a fucking book or something you numchuk.
read six in the last two weeks. the industrial concerns are ramping up this summer...no shutdown this year. this is working class moulah that is hard to describe. i've seen the paper mills in Western Oregon and Washington State in person. 70 grand a year just to move a roll. if the price of lumber explodes higher...guess what...the entire State of Maine will become rich overnight. real estate? Pluuueeease. 100 million penthouse in New York City? Wow. you're living in an extreme...and extremely negative DELUSION...and while my direct ability to participate has been handicapped by my health...i'm not gonna let it get me down. You on the other hand...
Go fishing, have a barbecue, share some beers and good stories with a friend or two and let this shit worry about itself. Hard times are coming either way so make happy memories while you can.
+1 Lunatic. Got to keep it all in perspective.
Looking back, the hard times I experienced were some of the best as well.
Biflation bitches!
https://en.wikipedia.org/wiki/Biflation
Everybody losses. Stock, bond holders, gold stackers everybody gets killed.
The amount of cash held by people continues to grow. It averages over $3000 per person in the US. Good to hold cash since the banksters can't confiscate it.
The author states a plausible scenario, but there are still government interventions that we cannnot even imagine yet to come.
http://dareconomics.wordpress.com/2013/05/23/around-the-globe-05-23-2013/
Where can Buffett DEPOSIT 49 billion dollars?
Naaah, I don't believe that.
There will be a lot less money in the system, but still large amounts of *debt*. This will mean that there is less activity, but with a constant cost basis. Everyone has to keep their prices up so that if they make a sale, they can pay their mortgages, but there won't be any money in the system. The people who own their own stuff outright are going to be the real winners, as they will have real options.
Most Americans do not have any cash saved, so in a hyper-inflationary environment they won't be able to purchase anything. Wages will not increase, so that will contain inflation for a short while.
The most likely scenario is a long drawn out decline in purchasing power with an increased reliance on the federal government to take up the slack. As less people can afford to buy items they want, they will look to the government to take away the burden of utility payments, rent, and food. If your earning potential is capped at $20k, but you can reduce your base living expenditures by transferring $5k a year over to the government, you now have an extra $5k to spend on consumer crap. Even if the price of the goods go up, you can afford to buy more as long as the government handouts keep getting larger.
Eventually the system will fail once there is not enough going into the welfare system to pay for the benefits. That is when the printing press goes into hyperdrive, and we might get a hyper-inflationary scenario. However, by this point society will have fallen into a total wasteland making current Detroit look like the Hamptons.
The middle class will die out long before hyperinflation takes hold. Living a modest middle class life in the midwest requires around $30k a year just to pay for base expenses. $12k for a mortgage and property tax, $6k for mandatory insurances, $2400 for utilities, $12k for food. That doesn't even count gasoline or a car payment. Throw that in the mix and you've got another $5k easy. Now you are at just about a $50k a year job just to pay for necessities. You won't qualify for a single government program, and you'll have a high tax burden.
The current slow crippling inflation is killing off a few hundred thousand middle class lifestyles per month. You throw $4 gas and $4.50-$5+ nat gas at homeowners later this year and most of them are just going to give up. They will see neighbors eating better, driving better cars, and not worrying about getting sick, parking in handicap spots so they don't have to walk in the rain very far. They'll just say working just isn't worth it, and they'll join the welfare class. Obamacare will probably kill off at least 30 million middle class jobs as those making $30-50k a year simply walk away from their jobs and attempt to get a minimum wage, no skill job just to get a low income voucher for a health plan.
I call it the Socialist Capitulation. Instead of trying to fight the parasite, the host just gives in and lets it take over. For a short while the elites will think they have won, the Marxists will think they finally realized the dream. Then the starvation begins, then the riots, the crackdown, and finally the heads of the elites will be hanging from streetlamps. We'll probably have another Hitler, a new Holocaust, WWWIII. If anyone is left we might get another crack at representative democracy, but most likely it will be a Mad Max wasteland world.
Yesterday is always going to have been a better day for most of us.
You from Minnesota? We are building a new Vikings stadium here because I smoke cigarettes. Already went E-cigarette.
The only motherfuckers living high-on-the-hog around me are govt scum- cops,firefighters,etc.
In Cali ... retired and makin a hundred grand easy ... cops and firefighters, teachers at 70, and state workers up to 250 and thats only after the disability peters out.
Reversion to the mean, bitchez.
You know what's funny? The peak of the middle class lifestyle was about 1972. Right when folks were bitching about it the most. It was Archie Bunker time.
A one income household could live OK, pay off a house, save for retirement, take a bit of vacation AND save for kids' college (to 'escape' the parents' blue collar scene).
Now..........round and round the bowl.
And so few even know the most basic facts....real per capita disposable income, employment (as opposed to unemployment) rate and the like.
I don't know if anyone is interested in listening to this, but I made two podcasts some time ago where I talk about my experiences living and working in Bolivia in the 1980's when they experienced hyperinflation of 20,000% per year.
I'm no trader or economist - but I did live through it and recorded some of my observations in the hope that it might stimulate people to think about what will be like here when TSHTF.
Living Through Hyperinflation Part 1
Living Through Hyperinflation Part 2
Thanks ... I'll keep these for later, right now I'm going to the bank to put some moar cash into my account
"Most Americans do not have any cash saved, so in a hyper-inflationary environment they won't be able to purchase anything. Wages will not increase, so that will contain inflation for a short while."
Wages will rise as inflation takes hold over time. What will happen is that business that dont provide consumbles will go out of business because people will need to spend more money on food/energy and other basic neccessities. The higher costs for food/energy will drive higher wages in those industries as business are forced pay higher wages to meet demand. Demand for workers for gas/oil is high and those companies are offering high wages. Because EROI is declining, energy companies will need to employ more workers as they constantly seek to develop new oil/gas reserves just to offset depleting in older developed fields. This is what happened in the 1970s and it happening again.
Same will happen in other industries that sell consumble goods. I believe most of the top paying industries also have the lowest unemployment rates. I believe the top career in the use is software engineering with wages near $100K per and an unemployment rate of 2.1%. I believe the unemployment rate for oil\gas developer is near 4% (but I haven't checked lately). I suspect that the industries with the lowest wages and highest unemployment are travel and leisure or other industries where consumers are no longer spending their money. As the gov't prints more and the dollar devalues, foreign imports become too expensive and companies start producing domestically. Inflation starts when there are too many dollars chasing too few goods and services. While there is a lot of unemployed, there are also pending shortages (energy, ammo, food, etc). As more business fail or shift production and sales overseas there will be more shortages, putting pressure on domestic prices. if what you say is true about gov't subsidies, that demand for consumbles will remain strong, as the gov't prints ever greater amounts of money to pay for the subsidies.
Zimbabwe had high unemployment, until inflation took off. Once inflation took hold, everyone was forced to find a job no matter what, just to eat. It will happen here in the US too, unless there is some major event that causes a global dieoff first (WW3, pandemic, etc).
" Living a modest middle class life in the midwest requires around $30k a year just to pay for base expenses. $12k for a mortgage and property tax"
That depends on how many people occupy and contribute to the housing costs. With 2 incomes its hard, with three or four people contributing to housing costs it much easier. Occupancy in homes will go up and its already happening, as younger generations are forced to live at home with their parents and older generations near or in retirement move in wiith their kids.
"Eventually the system will fail once there is not enough going into the welfare system to pay for the benefits."
That has already started in 2008, when federal manditory spending (entitlements, wealthfare, etc) exceeded tax revenue. Perhaps calenday year 2013 will be an exception because many people took actions to avoid the 2013 tax hikes, causing a spike in federal tax collections. But that is a one shot trick. I recall reading that entitlement spending has already increase $65 Billion for FY 2013 (so far).
You basically described the current condition, not the future, so thanks.
It seems fairly obvious to me that deflation is the only viable possibility, in America, at least. If hyperinflation were to occur, the Fed's massive bond-buying would have already produced it, though in some areas, it seems to have happened, but only in select, controlled markets: equities, bonds, and, as seen yesterday, new home prices (limited supply, expansive lending).
The real question when it concerns new housing is, who pays? It's all on credit, so the banks have ponied up most of the dough. Look for sub-prime 2.0 coming to a new neighborhood near you soon when wage stagnation or deflation (or complete disappearance of one's job) causes more defaults. Then, the banks have real problems, a la 2007-09.
It's always been deflation that the Fed is fighting, regardless of their policy because deflation is the death-knell of fractional reserve banking. They're pushing on a string, as all their printing has gone primarily into stocks and held as reserves by the insolvent banks, scared to death to lend because they've already had one near-death experience.
When the banks go belly-up again - and they surely will - they will not be rescued this time. Maybe some limited bail-ins will occur, with bond-holders and high-balance depositors the worst affected, on down to the basic, FDIC (un)protected deposits.
The banks will be forced to break up, either by government decree or market forces. They are too big and unwieldy to last much longer. The entire financial system has been teetering on the brink of failure and implosion for five years. The balancing act has not produced a recovery, only a prolonged depression and the Fed knows they're making it worse.
The stock market is a complete farce, built on free credit and stock buy-backs that have produced phony EPS comparisons. This condition cannot maintain itself for much longer before it implodes upon itself. Already we are seeing top-line revenue misses, but bottom line, in-lines or beats because these companies are actually getting smaller, not larger (growing). In real terms, stocks are highly overvalued, distorted by the rapid shift to fewer shares outstanding due to buy-backs. It's a complete sham, so, when looked upon in the proper light of day, these supposed inflated assets are actually deflating. It's all smoke and mirrors.
Same with new housing. You're paying more for cheaper shit, lower-grade materials, which, superficially, is inflationary, but, when the default comes, will be hugely deflationary.
Deflation has been winning, will continue to win and wins for a long time before the government or the Fed actually can "reflate" (I love that stupidest of stupid terms) the economy.
Debtors win with inflation. You know J6Ps in debt, so you say "it'll never happen". Biggest debtor by far is Uncle Sam, repeat, Uncle Sam is a debtor too, he will win!
I think the banks will be rescued again. The 'right' ones of course. One or two may be cannibalized, Lehman or Bear Stearns style.
The inflation/deflation argument, which goes nowhere, has turned into a convenient one to distract from the corruption and chaos -- and the Control which will guide it along as far as it can until you will finally wonder -- what does inflation/deflation have to do with anything(?)
What's up with the entertainment value of inflation/deflation when not only the fundamentals are gone, but so too is the foundation itself?
If we have massive deflation, which is possible, it's highly unlikely that it will be followed by inflation and hyperinflation in a short periiod of time. Michael talks about the reasons for deflation, the liquidity trap, wages not increasing, etc; if we see massive deflation what will trigger inflation? I seriously doubt the Fed or any other gov't official is going to hand out cash to the 99% to buy stuff. Printing money won't cause inflation, even massive amounts, velocity of money creates inflation and it's not going to leak out quickly after massive deflation, it will take time.
If this plays out like Michael says, the 99% will vote all the criminals out of office and a new bunch of criminals will emerge. Everyone will be on food stamps and the newly elected gov't will create a New Deal program to get us back to work. They will start with infrastructure projects and move to getting the US energy independent. Over time we will get inflation. I like Michael's sight and he posts great information and makes good points but he sometimes jumps to unlikely conclusions.
"I seriously doubt the Fed or any other gov't official is going to hand out cash to the 99% to buy stuff."
The Feds are going to buy the stuff, and hand it out, get it!
Black people
Only over the Hedge you would be allowed to have such a handle, wear such a mask, make such a comment and receive green arrows.
Kudos
uhhhhh...I believe the majority of economists predict a mean reverting economy with NO deflation, NO hyper-inflation, and absolutely NO structural unemployment. After all, the "central tendency" of economic growth is trend stationary NOT unit root. Bernanke has told you a thousand times already. Learn econ 201 already ZH.
/s
You all know my theory. We can have biflation for a long time, hiding the realities of inflation and deflation simultaneously in just the wrong places. Net result is crushing of the purchasing power of currency. And wages. And lastly wealth hoarded in cash.
The sequence of events leading to this state (and perpetuating it) are simple: First deficits and overspending were allowed to run wild, now debt is being ignored as bigger debt is required to service older debt. Finally currency itself will lose meaning as it becomes just a worthless IOU promising to pay off hopeless levels of debt held by too many creditors.
Political solutions grow out of the situation: as predicted, the US and China have more and more in common as their methods resemble each other more and more. Authoritarian regime is needed to squelch discontent.
Stocks for the long run? Not even the bankers believe in the fairytales anymore. For the long run it's gold
We're all speculating. We're consulting our knowledge of economic history, what we hold to be axioms, precepts, principles or laws of finance and economics to try and predict the outcome. We can't really as we are in unchartered territory. Mankind has never been in this position before (at least on this planet or in recorded history). Lots of unintended and intended consequences, volatility, multi-dimensional dynamics and interplay going on here. Whoa!
Judging from the behaviour of the American masses I think it will be a long time still before the lack of confidence in the currency builds to a point where it creates a pendulum swing. It is the consensus sentiment of the populace that causes the pendulum to move to the other side, correct?
Personally I'm holding out and sitting on cash in the hopes of buying the tangibles I need at bargain basement prices to protect my wealth before the high or hyper-inflationary curve goes parabolic. I hope I'm right. GULP!
You may want to consider diversifying.
lawyers guns and money- the shit will soon HTF.
+1 Zevon, so odd, yet cool!
in 15 years of selling to retail and producing consumer products, I have never seen an environment like this year so far.
Nothing is being bought to satisfy consumer demand because there just isn't any. Trends are reversing so fast that designers can't keep up. When a trend emerges everyone jumps in and floods the market hoping to get a small piece. The mass overflow of product kills end demand, and you're back at nothing.
Mega corporations are getting into every single market. All competing against each other in every category, chasing a group of consumers who can't even begin to buy that much merchandise. If there are 1 million potential customers each company is trying to grab all 1 million, instead of being happy with a small piece of the pie. Not everyone can get the whole thing, it just isn't possible.
Planning meetings consist of a guy sitting at one end of the table motorboating his lips, another guy asleep, some guy rambling about synergistic marketing dynamics to leverage social media in order to increase sales, and another guy plotting to kill everyone else in the room.
I think I will need a rubber room very soon. I really can't take it.
Just admit to yourself it is all fubar and you won't need the padded room ... there's very little you can do to save it and there's no value in feeling bad about it either.
Now, how to survive past it is where things get interesting again ... put your focus there.
If you align yourself with that last guy, you might stand a chance of surviving. Best o' luck.
Leapin' mother of jeeesus, Rocky. Another damned keyboard!
"Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country."
Where are the eCONomists that are debating this? All I hear from these idiots (Krugman) is how great the economy is.
You need to get out more. Try visiting Mises.org.
Diversification:
Sleeping bags; tents; wood stoves; fishing rods and tackle; hunting rifles; water filter systems; freeze dried and dehydrated meals; barrels of water; first aid kits; vitamins and minerals; warm clothing and shoes; basic tools.
How's that?
rice stores for years in airtight buckets with no loss of nutrition or flavor, can be eaten or used as money, extremely unlikely to get stolen and easy to rotate.
"rice stores for years in airtight buckets with no loss of nutrition"
..and is one of the worse sources of calories. eating a bowl of rice is the same as eating a bowl of sugar. Rice is nearly entirely starch which is converted to sugar in your body.
dry beans are a much better and healthier option.
+1 because it's true
Keep in mind that cooking beans uses up a lot more energy since it takes longer than cooking rice (20 minutes in a pressure cooker vs 10 minutes in a pan for rice). One might not have that much energy available for cooking ...
I don't like beans they make me fart. Try brown rice if you want more nutrition. Besides, I've been to a part of the world and witnessed rice used as money, never heard of beans as money, you'll be unpopular at the market.
"I don't like beans they make me fart"
Thats fixable. Soak the beans in water for a few hours and dump the water before you cook them. There is an enzyme in the beans that causes gas. By soaking the beans, the enzyme is released into the water, Just dump and replace the water before you cook them. Soaking them in hot water is more effective in removing the emzyme than in cold water.
Beans are the closest approximation to protein. where as Rice is a starch which breaks down into sugar. Rice also has little to no fiber which can lead to constipation. Beans do contain fiber.
" witnessed rice used as money, never heard of beans as money"
Did you ever hear of the phrase "bean counter", in context of accountants? In regions where rice is the primary diet the lifespans of the people are considerably shorted than westerners. Rice is cheap but its extremely unhealthy.
Might be better off with a ticket to Australia, Canada, or Germany. You will be able to live in a house and shop at a store. Don't think the rest of the world will collapse if we do. Rome, Byzantium, Great Britain...... USA.
Take your cash, get a 3% loan and buy an multi-family apartment building in Brooklyn.
Try to collect rents in crazy liberal-run world ... If you own, you will be the enemy and target, unless you have enough to hire an army ... then I will call you an elitist pig. Most economic decisions today are based upon the status quo of todays world. It will be vastly different when people about you are starving. Rule of law may be in place (i.e. Argentina) but street rules will apply. Be prepared
Become a slumlord! ........................ No thanks.
a milling machine. These are being bought in large numbers by Greeks, Portugese, Spaniards, small wheat milling machines for whole meal bread
You forgot seeds.
I think large amount of seeds will be very useful. It's the kind of good that farmers will want. If you carry a few kg of seeds with you, you can instantly move to a farmland area and barter with them so you can settle in, in exchange for their food.
Depending on circumstances, seeds could be more valuable than gold.
Cialis or a cold shower?
Either way, buy fusicals, carry cash, wait for the blood in the street and buy, buy, buy productive assets that you can either protect, get protected or have low risk of expropriation.
Generational super riches and powers will be made within the next 5-10 years.
Two shopping observations this week: Bike inner tubes (rubber) $5.99 each and cast iron dutch oven $42. So is that inflation or deflation already?
$6.48 for an extruded aluminum carpet trim.
There is about the same amount of aluminum in the trim piece as a 40oz can of Beer. The 40oz beer can be had for $1.99, and it is filled with beer.
I look at the $6.48 piece of carpet trim and think, "yeah fuck it, my wife is going to have to keep tripping on the carpet."
Buy a six pack, drink them, and nail the empties to the floor.
Win-win.
The US does not have a dollar. The US has Federal Reserve Notes.
The US will issue a Treasury dollar and force the Federal Reserve Notes into a low conversion within the US Banks. All Federal Reserve Notes held outside the USA will keep the same value. The new US Treasury dollar will be worth 20% of what it is now.
Wages will not go up.
Globalization arrives, all labor has an even playing field Wage Slavery goes Global. Fed keeps control of the Petro dollar, the Planet continues to burn up.
If you are in the US and don't like it, np. DHS has 1.5 billion bullets to convince you or "remove the terrorist".
Call it deflation or inflation, it does not matter. Same effect.
printmore$, you're spot on!
either way, we end up with devalued or debased currency. straight fact!
Credit creation followed by Credit destruction
The governments around the world exert their power in every way to prevent Credit destruction but in the end all the vapor ware Credit will be destroyed. Avoid being dependent on these Credit systems!
Mostly correct, but you failed to mention the trillions of already "printed" dollars that will flood back into the US. Foreigners will buy any and everything just to get rid of their dollars.
The US will be the only country in history to attempt;t to control money flowing IN and not out.
"Their hereeeeee!"
Easy ... Just print a new $100 bill and then insist on local exchange. (New $100 dollar bill is planned for October ... http://www.ibtimes.com/new-100-bill-release-date-set-early-october-will-feature-innovative-3-d-security-ribbon-photos )
deflation or inflation ? i vote for whichever makes GOLDMAN SACHS go bust. wipe those criminals out, plz, so i can die happy.
Unfortunately GS MAKES policy .... Policy to keep GS leaching.
I think deflation is more likely because
http://www.marketoracle.co.uk/Article40231.html
I would also add lead and a Dillon Press to the things to have.
Biflation OR Stagflation.
Inflation is already here. Home prices are soaring.
so why is the entire commodity complex getting monkey hammered? i do agree...this is the worst recovery ever...i say "give it time." http://www.sacredlotus.com/theory/yinyang.cfm
Soybeans building base for major-major move in food.
velocity needs to pick up but the way the collapse will occur is a strengthening dollar as it becomes the preferred cash to hold as the other western currencies fail and then hyperinflation as it is realized currency is not where you want your cash and the dollar collapses. history says currency moves back to gold and siolver until the next fiat scheme is hatched.
the dollar is strengthening now as a function of a weak yen and euro. gold and silver may be the only safe falling knife you ever bought here.
Inflation - vs - Deflation
Whichever creates the most chaos.
D+I = HavocMax
BTW, the chart in the article that shows the trade balance is using data points that represent monthly trade data, even though the horizontal axis appears to be demarcated in years (i.e. the current trade deficit is running approximately $40 Billion per month as per the most recent data point).
This is not going to be a single event Infact it may look like were inflating one day and then deflating the next. I don't think were really going to know what color the bus that hit us was until were out from under it.
Of course if you want a thought experiment here goes. Modern Economic theories see's Money as a magic fetish that somehow creates real economic growth when it enters the economy. When A Central Banker see's the Economy slow down he see's it as a function of not enough money. So Ben Bernake will print and print hard BUT what he fails to understand is that most businesses are already on margins so tight a flea couldn't crawl between them. So what could happen is instead of getting hyperinflation through fast price rises businesses may just say Fuck it and quit producing altogther. Real goods will start to disappear from the economy this will look like deflation from the FED's viewpoint causing them go into even more money printing. Which is why I think we might well see DOW 5 quadrillion or some other meaningless number while people starve to death in the street.
This Whiplash of Deflation, then Inflation was first proposed by another ZH blogger. About a week ago or so, I think.
This is not the first time that ZH writers are piggy-backing (plagiarizing?) the concepts and ideas of the bloggers. Interesting writing/business model: Use blogger's sound idea, and add own writing skills to create a ZH article that gives career exposure.
Unless, of course, a ZH writer first floats a concept as a blogger and then -- depending on the response -- develops it further. That would be quite devious, but not unacceptable.
I have been blogging the same thought for three years, and many others have also. When logic arrives, the logical embrace it. I don't view his words as plagiarism, just another statement of economic thought. How many articles by Paul Krugman have we had to endure.
I always like to give attributions to my sources, they have a way of backing you up in surprising ways when you do that. Respect!
This is the power of ideas. If I write something here on ZH I want the idea to propagate. I don't want credit attributed to me FOR THE IDEA. The idea is what matters.
This deflation then inflation idea has been discussed under the name Ka-Poom Theory for some time, I believe.
Here's an idea, Rule of Law, or bust.
Hear, hear! It's the right and mature thing to cite your sources, and also for all the reasons you give.
You know how we hate the 'parasites'? Well, although I did not "say" that he plagiarized -- I asked -- I find actual cases of plagiarizing very despicable. I knew lots of wienies at a couple of former hi-tech giants who did that. The passive-aggressive types with a Stiletto: They'd never face you like a man, but cut & nick you here and there.
And for the down-arrow prick: I never said that I disliked or disagreed with the author, but merely that he sounded like someone else who said the same thing recently.
on this issue I want to give my personal hat tip to Caviar Emptor who first introduced me to the concept of Biflation.
"this is one of the reasons why the federal government has felt a need to run such huge budget deficits" ... I think not ... They run such deficits because they have to pay off all constituencies that voted them into office.
Inflation Tuesday, deflation rest of week
$6.48 for an extruded aluminum carpet trim.
There is about the same amount of aluminum in the trim piece as a 40oz can of Beer. The 40oz beer can be had for $1.99, and it is filled with beer.
I'll bet you didn't know but back pre 1965 carpenters use to use a can opener on both ends of beer cans and other tins as well so that the could use the ends on knot holes in 1x6 or ix8 roof sheeting so that the roofing felt didn't tear while laying asphalt shingles.
People would look at the roof and see dots all over.
That's where the Name Dottie comes from. A company still in business today.
http://www.drillspot.com/products/679319/dottie_41-5_cable_protection_pr...
http://www.lhdottie.com/
Thanks for sharing fine observations of reality backed by credibility. Such trust should be replicated more in my opinion.
Who's Dottie?
Everything I buy costs more.
This is deflation?
"The Velocity Of Money Is At A 50 Year Low" Maybe time to bring back the Greenback?
The Five Stages of Collapse - Survivors Toolkit – Dmitry Orlov
http://cluborlov.blogspot.com/
Just received my personally signed first edition copy # 62 of 250 today and need to take a moment to gloat.
Think I will fluff up my silver filled pillows, snuggle up with my Kalashnikov, break a bottle of bourbon out of the bunker and look ahead to those days before us with great insights from Dmitry.
Life sucks then you die!
Unfortunately all my silver and rifles and such were lost along with many other Minnesotans in a Viking Raid from Duluth to Superior Wisconsin. We were going there to steal all their cows. It was last November it was, the winds of November blew early. We didn’t die some guys from Chicago on a Salmon charter picked us up. They understood.
Anyway I got my book from Dmitry.
Order yours soon, there going like pancakes at a Lutheran Sunday Church Breakfast.
Shameless hustling by me, for a great thinker I admire.
Thanks Chairman Mao we are living in such an interesting time!
USA Why The Fed Risks are Nonsense Posted on May 23, 2013 by Armstrong EconomicsReply
All we have heard is about the hyperinflation all based on the idea that the Fed has increased the money supply. I have warned that the dollar has become the new world currency. The German elections in September are not looking good. Let’s just step back a second and look at the issue without bias. The real risk of the Fed is perhaps a half-trillion loss that is less than 3% of GDP. We have the Bank of England buying nearly 100% at times of government new debt compared to 60% at the Fed. The Fed has simply a theoretical inflation risk. However, what is the risk at the ECB and Bundesbank? The risk there is the collapse of the Eurozone that ends in the split of the union. The whole issue of the ECB saying that depositors will have to bailout the banks is because they cannot reach agreement of who will pay for what. Germany is not about to pay for a bailout of Spanish banks. So the only solution is that the depositors of the troubled bank will have to suffer the loss. That is the “fair” way of doing this with of course those with more than a €100,000 euro will pay most of the cost.
In this case the Bundesbank, that sits on €700 billion of peripheral euro (debt) assets of member states. If these assets were shaved by 30%, the currency devaluation for such assets would be about 5% of the German GDP. Clearly, the risks of a catastrophic collapse exists in Europe on a major scale. No such risk exists at the Fed.
The Swiss government holds assets of €350 billion in foreign currency reserves. A 18% franc revaluation to EUR/CHF parity would give them a loss of €60 billion that would amount to 12% of Swiss GDP. The risk for the Swiss is trying to prevent the Swiss from rising against the Euro and that risk in the result of the peg/
The dollar is the only game in town. If the German elections turn bad, look out come September.
========
I believe Armstrong is correct. USD will gain strength and will last the longest. Japan and Europe have to go first. If my history lesson was correct, it was all the capital coming in from Europe in 1910 and through the early 20s (due to their troubles) that helped to fuel our boom and bust. It will happen again. And since income taxes also has been in place since 1913 for 17 years that also helped to blow us up. Capital is going to flow here again and Obama and his ascendents will be continuing to raise taxes on us to squeeze for all the revenue they can. History may just repeat this time.
Both hyperinflation and hyper-deflation will cause panic, and no one knows what that will look like ... if fiat is worthless (gold will be confiscated or too dangerous to redeem) and if banks close you lose your money ... only downside to what the FED is doing. We have no out
paper assets===>deflation
hard assets ===>inflation
real estate will be a roller coaster mixed bag as well. with a credit crunch RE prices will decline significantly because as the article states, the job situation is terrible and getting worse reflecting not a inflationary recovery on the horizon. RE prices could crater from here when you are required to put up 30-40-50% equity for a mortgage.
obviously a currency bust or a bank run will cause necessary tangible hard assets to skyrocket.
The old economists and media thinking we are in some recovery and it just takes time are going to be fooled. Jobs are not recovering and the central bankers are making things worse just to CYA.
the imbalances are high and structural changes will happen that is some prices will go up and some prices will go down simultaniously
also have in mind that usually people who are in debt they have no money or means to return the debt so debt is not that much deflationary. The reason we see deflation is simply because consumers stopped borrowing
Deflation means Joe Sixpacks with 20k in the bank can buy mansions. Not going to happen. Ever. It's so clearly inflation, as soon as Bernanke & co have their bluff called. They've been crying wolf about interest rates for five years yet the market still listens...for now. Token .25 rate hike? Maybe to show the emperor has some clothes. So obvious, yet people are so clueless.
Joe six pak with 20K might be able to buy a mansion in a deflationary crash (if any are available for sale at all), but he won't be able to keep it. Property tax will be a good 10-20K/yr on such a house.
This just in: National Economic Weather spokesman Terd Nurdlinger reports that the economic forecast shows coming periods of deflation masked by liquidity, followed by increasing severity of deflation, with frequent strong gusts of State appropriation and money printing. After this system has moved through, it will be followed by increasing high pressure zones of inflating cash and enlarged areas of unemployment as well as increasingly accepted FEMA "temporary camps".
Jim Rickards sketched a compelling picture of two tectonic plates rubbing each other on the faultline. One tectonic plate representing Inflation and the other Deflation and these two forces are pushing against each other sometimes creating earthquakes, being abrupt volatility in the financial sytem.
Keiser Report: Narcissists' Rally (E448) with Jim Rickards - PART I http://www.youtube.com/watch?v=-r0uXX4gX9Y
Comment: http://www.maxkeiser.com/2013/05/kr448-keiser-report-narcissists-rally/
UK: Heathrow closed
Smoke can be seen coming from the plane
emergency landing?
http://homment.com/zrrK6Hc3jc
Actually, only the southern runway was temporarily closed so the BA A319 could land.
It landed safely and it's all over, bar MSM reporting it with copious footage.
Simple example will suffice:
Imagine if the only legal tender were rotten pizzas. Now rotten pizzas would be hard to get, they would not last long, and the supply would be scarce. We would have deflation as the existing pizzas rot away, and the pizza houses would not have enough rotten pizzas to buy supply. At the same time what could you buy with your rotten pizza, except perhaps a slightly more rotten pizza. This is the situation today, of course.
i read somewhere: inflation in the things you need, deflation in the things you own.
I agree with that.
It's too easy for people to assume that deflation means lower consumer prices (like we've seen in the past 20 years on IT products), but this rarely happens. Deflation is largely confined to asset values and happens at the same time as consumer prices continue to rise. Hence we get asset deflation and consumer inflation at the same time. A very destructive mix...
indeed, a good recipee for growing poverty and political instability, which are good the good times for warmonger and other dangerous people looking for power and influence.
Hyper-biflation, everybody looses except TPTB. They already control 50% of all assets in the world and it's not many of them. Soon they will own much moore through the power of the exponential curve. But they are digging their own grave, there is no point owning 100% of all the worlds assets.
Why try to out guess what isn't yet?
If tomorrow it's hot, I'll put on a t-shirt.
If it's cold I'll put on a jacket.
I am prepared for either event. I know how to adapt. That's the Darwinian way.
In the meantime, rather than wring my hands, I'll sit back and wait for a new day.
Deflation
On the velocity of money chart...
An observation ...by itself, this chart is not irrefutable evidence of impending economic collapse.
It broadly shows that velocity (M2V) has fallen more or less in line with each past recession, as one would expect. People become fearful about their jobs etc and cut back on spending. But velocity then bounces back soon afterwards as the economy recovers. This MAY happen again and it's obviously what central bankers are hoping for with their bizarre policies. This possibility is based upon the assumption by central banks that we are simply in yet another recession, albeit a deep one, but nothing more serious.
Perhaps more important - or equally important - is the issue of velocity being on a downward trajectory since the mid 1990s and has probably only been kept afloat by the flood of cheap money, begun by Greenspan and continued by Bernanke and other central bankers. This suggests to me that the cause of the gathering problem is too much cheap money which gives rise to excessive debt. Deleveraging is now taking place on a grand scale, at corporate and private level. Sadly, not by governments.
"but if you can handle the ride you will be smiling in the end"
Happy ending bitchez!
I think too many people don't understand how velocity is computed. That velocity chart shows hyperinflation of the money supply. When you double the money supply very fast, velocity gets cut in half. That is why it is dropping so fast on every new QE. You can't spend it faster than it can be printed. You can make the argument that it still sucks and it should be higher. I will agree with that. But I caution you. It is higher in 2008 dollars already. When that chart shows any move up, you will see hyperinflation like you never expected.