This page has been archived and commenting is disabled.
OPEC Presents: QE4 And Deflation
Submitted by Raúl Ilargi Meijer of Automatic Earth
OPEC Presents: QE4 And Deflation
Thinking plummeting oil prices are good for the economy is a mistake. They instead, as I said only yesterday in The Price Of Oil Exposes The True State Of The Economy point out how bad the global economy is doing. QE has been able to inflate stock prices way beyond anything remotely looking fundamental, but energy prices have now deflated instead of stocks. Something had to give at some point. Turns out, central banks weren’t able to inflate oil prices on top of everything else. Stocks and bonds are much easier to artificially inflate than commodities are.
The Fed and ECB and BOJ and PBoC may of course yet try to invest in oil, they’re easily crazy enough to try, but it will be too late even if they did. In that sense, one might argue that OPEC – or rather Saudi Arabia – has gifted us QE4, but the blessings of the ‘low oil price stimulus’ will of necessity be both mixed and short-lived. Because while the lower prices may free some money for consumers, not nearly all of the freed up ‘spending space’ will end up actually being spent. So in the end that’s a net loss as far as spending goes.
The ‘OPEC Q4? may also keep some companies from going belly up for a while longer due to falling energy costs, but the flipside is many other companies will go bust because of the lower prices, first among them energy industry firms. Moreover, as we’re already seeing, those firms’ market values are certain to plummet. And, see yesterday’s essay linked above, many of eth really large investors, banks, equity funds et al are heavily invested in oil and gas and all that comes with it. And they are about to take some major hits as well. OPEC may have gifted us QE4, but it gave us another present at the same time: deflation in overdrive.
You can’t force people to spend, not if you’re a government, not if you’re a central bank. And if you try regardless, chances are you wind up scaring people into even less spending. That’s the perfect picture of Japan right there. There’s no such thing as central bank omnipotence, and this is where that shows maybe more than anywhere else. And if you can’t force people to spend, you can’t create growth either, so that myth is thrown out with the same bathwater in one fell swoop.
Some may say and think deflation is a good thing, but I say deflation kills economies and societies. Deflation is not about lower prices, it’s about lower spending. Which will down the line lead to lower prices, but then the damage has already been done, it’s just that nobody noticed, because everyone thinks inflation and deflation are about prices, and therefore looks exclusively at prices.
It’s like a parasite can live in your body for a long time before you show symptoms of being sick, but it’s very much there the whole time. A lower gas price may sound nice, but if you don’t understand why prices fall, you risk something like that monster from Alien popping up and out.
I had started writing this when I saw a few nicely fitting articles. First, at MarketWatch, they love the notion of the stimulus effects. They even think a ‘consumer-spending explosion’ is upon us. They’re not going to like what they see. That is, not when all the numbers have gone through their third revision in 6 months or so.
Welcome to the new era of QE4. As if on cue, OPEC stepped in just as monetary policy (at least the Fed’s) has dried up. Central bankers have nothing on the oil cartel that did just what everyone expected, but has still managed to crush oil prices. Protest away about the 1% getting richer and how prior QE hasn’t trickled down to those who really need it, but an oil cartel is coming to the rescue of America and others in the world right now.
It’s hard to imagine a “more wide-reaching and effective stimulus measure than to lower the cost of gas at the pump for everyone globally,” says Alpari U.K.’s Joshua Mahoney. “For this reason, we are effectively entering the era of QE4, with motorists able to allocate more of their money towards luxury items, while firms are now able to lower costs of production thus impacting the bottom line and raising profits.”
The impact of that could be “bigger than anything that has come before,” says Mahoney, who expects that theory to be tested and proved, via sales on Black Friday and the holiday season overall. In short, a consumer-spending explosion as we race to the malls on a full tank of cheap gas. Tossing in his own two cents in the wake of that OPEC decision, legendary investor Jim Rogers says it’s a “fundamental positive for anybody who uses oil, who uses energy.” Just not great if you’re from Canada, Russia or Australia, he says. Or if you’re the ECB, fretting about price deflation. Or until it starts crushing shale producers.
Bloomberg, talking about Europe, has a less cheery tone.
Eurozone Inflation Slows as Draghi Tees Up QE Debate
Eurozone inflation slowed in November to match a five-year low, prodding the European Central Bank toward expanding its unprecedented stimulus program. Consumer prices rose 0.3% from a year earlier, the EU statistics office said today. Unemployment held at 11.5% in October [..] While the slowdown is partly related to a drop in oil prices, President Mario Draghi, who may unveil more pessimistic forecasts after a meeting of policy makers on Dec. 4, says he wants to raise inflation “as fast as possible.” [..]
“The only crumb of comfort for the ECB – and it is not much – is that November’s renewed drop in inflation was entirely due to an increased year-on-year drop in energy prices,” said Howard Archer at IHS. The data are “worrying news” for the central bank, he said. Data yesterday showed Spanish consumer prices dropped 0.5% this month from a year ago, matching the fastest rate of deflation since 2009. In Germany, Europe’s largest economy, inflation slowed to the weakest since February 2010. [..]
Bundesbank President Jens Weidmann, a long-running opponent to buying government bonds, today highlighted the positive consequence of low oil prices. “There’s a stimulant effect coming from the energy prices – it’s like a mini stimulus package,” he said in Berlin.
Sure, there’s a stimulant effect. But that’s not the only effect. While I’m happy to see Weidmann apparently willing to fight Draghi and his pixies over ECB QE programs, I would think he understands what the other effect is. And if he does, he should be far more worried than he lets on.
But then I stumbled upon a long special report by Gavin Jones for Reuters on Italy, and he does provide intelligent info on that other effect of plunging oil prices. Deflation. As I said, it eats societies alive. I cut two-thirds of the article, but there’s still plenty left to catch the heart of the topic. For anyone who doesn’t understand what deflation really is, or how it works, I think that is an excellent crash course.
Why Italy’s Stay-Home Shoppers Terrify The Eurozone
Italy is stuck in a rut of diminishing expectations. Numbed by years of wage freezes, and skeptical the government can improve their economic fortunes, Italians are hoarding what money they have and cutting back on basic purchases, from detergent to windows. Weak demand has led companies to lower prices in the hope of luring people back into shops. This summer, consumer prices in Italy fell on a year-on-year basis for the first time in a half-century ..
Falling prices eat into company profits and lead to pay cuts and job losses, further depressing demand. The result: Italy is being sucked into a deflationary spiral similar to the one that has afflicted Japan’s economy for much of the past two decades. That is the nightmare scenario that policymakers, led by European Central Bank chief Mario Draghi, are desperate to avoid.
The euro zone’s third-biggest economy is not alone. Deflation – or continuously falling consumer prices – is considered a risk for the whole currency bloc, and particularly countries on its southern rim. Prices have fallen for 20 months in Greece and five in Spain, for example. Both countries are suffering through deep cuts in salaries and state welfare. Yet Italy, a large economy with a huge public debt, is the country causing most worry. [..]
Like Japan, Italy has one of the world’s oldest and most rapidly aging populations – the kind of people who don’t spend. “It is young people who spend more and take risks,” says Sergio De Nardis, at thinktank Nomisma. In recent years, young people have been the hardest hit by layoffs, he says. Many have left the country to seek work elsewhere. People tend to spend more when they see a bright future. Italian confidence has steadily eroded over the past two decades … In Italy, as in Japan, the lack of economic growth has become chronic.
Underpinning economists’ worries is Italy’s biggest handicap: a huge national debt equal to 132% of national output and still growing. Rising prices make it easier for high-debt countries like Italy to pay the fixed interest rates on their bonds. And debt is usually measured as a proportion of national output, so when output grows, debt shrinks. Because output is measured in money, rising prices – inflation – boost output even if economic activity is stagnant, as in Italy. But if activity is stagnant and prices don’t rise, then the debt-to-output ratio will increase. [..]
Sebastiano Salzone, a diminutive 33-year-old from the poor southern region of Calabria, left with his wife five years ago to run the historic Cafe Fiume on Via Salaria, a traditionally busy shopping street near the center of Rome. Salzone was excited by the challenge. But after four years of grinding recession, his business is struggling to survive. “When I took over they warned me demand was weak and advised me not to raise prices. But now, I’m being forced to cut them,” he says. [..] Despite the lower prices, sales have dropped 40%, or 500 euros a day, in the last three years.
For hard-pressed individuals, low and falling prices can seem a godsend; but low prices lead to business closures, lower wages and job cuts – a lethal spiral. Since Italy entered recession in 2008 it has lost 15% of its manufacturing capacity and more than 80,000 shops and businesses. Those that remain are slashing prices in a battle to survive.
Home fixtures maker Benedetto Iaquone says people are now only changing their windows when they fall apart. To hold onto his €500,000-a-year business, Iaquone says he is cutting prices. By doing so, he is helping fuel the chain of deflation from consumers to other companies.
In Italy’s largest supermarket chains, up to 40% of products are now sold below their recommended retail price, according to sector officials. “There is a constant erosion of our margins,” says Vege chief Santambrogio.
What Italy would look like after a decade of Japan-style deflation is grim to imagine. It is already among the world’s most sluggish economies, with youth unemployment at 43%. As a member of a currency bloc, Rome’s options are limited [..] Italy’s budget has to follow European Union rules.
Lasting deflation would force more companies out of business, reduce already stagnant wages and raise unemployment further [..] The inevitable rise in its public debt could eventually lead to a default and a forced exit from the euro.
Many in southern Europe say the EU should abandon its strict fiscal rules and invest heavily to create jobs. They also say Germany, the region’s strongest economy, should do more to push up its own wages and prices. Mediterranean countries need to price their products lower than Germany to make up for the fact that their goods – particularly engineered products such as cars – are less attractive. But with German inflation at a mere 0.5%, maintaining a decent price difference with Germany is forcing southern European countries into outright deflation
Italy’s policymakers are trying to stop the drop. Prime Minister Matteo Renzi cut income tax in May by up to €80 a month for the country’s low earners. But so far the emergency measures have had little effect – partly because Italians don’t really believe in them. A survey by the Euromedia agency showed that, despite the €80 cut, 63% of Italians actually think taxes will rise in the medium-term. Early evidence suggests most Italians are saving the extra money in their paychecks. If so, it will be reminiscent of similar attempts to boost demand in Japan in the late 1990s. The Japanese hoarded the windfalls offered by the government rather than spending them.
That same process plays out, as we speak, in a lot more countries, both in Europe and in many other parts of the world: South America, Southeast Asia etc.
Deflation erodes societies, and it guts entire economies like so much fish. Deflation is already a given in Japan, and in most of not all of southern Europe. Where countries might have saved themselves if only they weren’t part of the eurozone.
If Italy had the lira or some other currency, it could devalue it by 20% or so and have a fighting chance. As things stand now, the only option is to keep going down and hope that another country with the same currency Italy has, i.e. Germany, finds some way to boost its own growth. And even if Germany would, at some point in the far future, what part of that would trickle down to Italy? So what’s Renzi’s answer? An €80 a month tax cut for people who paid few taxes to begin with.
Deflation is not lower prices. Deflation is people not spending, then stores lowering their prices because nobody’s buying, then companies firing their employees, and then going broke. Rinse and repeat. Less spending leads to lower prices leads to more unemployment leads to less spending power. If that is not clear, don’t worry; you’ll see so much of it you own’t be able to miss it.
And don’t think the US is immune. Most of the Black Friday and Christmas sales will be plastic, i.e. more debt, and more debt means less future spending power. Unless you have a smoothly growing economy, but that’s not going to happen when Europe, Japan and soon China will be in deflation.
And yes, oil at $50-60-70 a barrel will accelerate the process. But it won’t be the main underlying cause. Deflation was baked into the cake from the moment that large scale debt deleveraging became inevitable, and you can take any moment between the Reagan administration, which first started raising debt levels, to 2008 for that. And all the combined central bank stimulus measures will mean a whole lot more debt deleveraging on top of what there already was.
We’ll get back to this topic. A lot.
»
- 28501 reads
- Printer-friendly version
- Send to friend
- advertisements -
a mesured 1% price decrease is a deflationary spiral ? Italians are just repairing their (actually, their parents') mistakes. A consumer hangover has to follow a consumer binge, has always been. So it just has to be as short as is necessary, but saying that this is end of Italy...
135 billion gallons of gasoline were used in 2013(142 billion gallons in 2007). multiply by the 50 cent recent savings/gal and not even 70 bil is added to the walmart side of the economy. it is something but not nearly enough to qualify for qe.
what is happenoing now is what happened to the depresion generation. the depression generation was different because they started out with not much and ended up with a lot less while the middle class today started out on the cusp of wealth and now have to struggle all over again. the middle class has a lot further to fall today. the depression generation just had a reminder that food, clothing, and shelter are the only things a person needs and everything else is a luxury. today's generation starts to get depressed when cable and internet are shut off. the idea of subsistence living includes a lot more than food clothing and shelter. they have no idea what they are in for.
so far, there have only been a handful of analysts that grasp the idea of deflation in an episode of hyper or even just high inflation. that is the ultimate destruction of the economy. that is what is set to happen in the usa and western economy. the recent rush to the dollar is an early indicator of this outcome.
"...not even 70 bil is added to the walmart side of the economy. it is something but not nearly enough to qualify for qe."
Totally different dynamic from QE. The fuel savings are going directly into the pockets of consumers, vs. electronic dollars sticking on the balance sheets of banks (after marginally inflating asset prices) with QE.
The underlying 96 ton elephant is the impending default on credit derivatives and its concommitant counterparty demise. Not pretty. Papering over everything has kicked the can very well until ........
“deflation kills economies and societies.”
Surely, this must be a mistake.
Inflation or deflation relate to a currency’s decrease or increase of value, respectively.
A little context: money is the basis of every contract or obligation; and for contracts to serve their purpose, terms of the contract must remain stable from the start to the end of the contract. If a money unit loses value over the life of the contract, productive and thrifty classes are cheated their labor or savings, while criminal and useless classes are benefited.
For example, if a money unit loses x percent, the producer loses the same percentage on his labor. And, while the thrifty individual may gain x percent on his purchase, he will lose 1,000x percent on his savings (investments). On the other hand, criminal and useless classes are benefitted x percent on all their purchases; and since they have no earned savings, they lose nothing on their earned savings.
Also, thru the “magic” (from the perspective of criminal and useless classes) of inflation, profits are overstated; this, combined with income taxes, allows capital to be taxed without the notice of those injured. Given enough time, the process will drive a society to a Stone-Age condition.
This is hardly a prescription for “growth”.
With deflation, profits are understated, and capital accumulation occurs even, in some cases, while reporting loses.
In other words, the rate of INFLATION is the rate by which criminal and useful-idiot classes conduct a general plunder of society at large; DEFLATION is the rate by which their plunder is curtailed, or halted altogether; and the process by which productive and thrifty classes add to the store of capital – sometimes without knowing it..
Of course they will scamper about in a near panic at the threat of deflation. Then, can you imagine what they will lose control of at the thot of being held accountable for what they have done?
......In other words, the rate of INFLATION is the rate by which criminal and useful-idiot classes conduct a general plunder of society at large; DEFLATION is the rate by which their plunder is curtailed, or halted altogether; and the process by which productive and thrifty classes add to the store of capital – sometimes without knowing it.....
+1000 Clesthenes - Fucking briliantly said!
Thanks, C
"You can’t force people to spend, not if you’re a government, not if you’re a central bank."
But..."the beatings will continue until morale improves..."
PUNISH those evil savers...!!!
1.) Price rises, inflation, devalues the poorest.
2.) Stagnation,economy stalls, tbh can't see a downside for ordinary people on this very stable.
3.) Deflation, bad, economy contracts, then it is like a noose round the neck ever tightening.
So why can't we have stagnation? Look to the level of sovereign debt that demands an ever increasing value to sustain the current level of debt is why! They know this, lie through their teeth about the figures etc.
From the last stagnation that fell into a depression (a deflationary concept with not enough to go round for the poorest) comes around when you become super efficient (Think Japan and the clever Nips of the 70's / 80's).
GOVERNMENTS NOW DRIVE THE INFLATION USING QE PAST STAGNATION LEVEL THAT IN ALL FAIRNESS WAS DEFLATION A LONG TIME AGO. THEY COULD NOT SEE HOW TO DEFEAT DEFLATION THEN LIKE THE CENTRAL BANKS CANNOT TODAY.
It is slipping and every increasing efficiency pushes it nearer.
Wages have been tumbling for quite a while now. If it were not for the millions of fraudulent zero down mortgages, student loans, car loans, etc the economy would have met its maker long ago esp given the rampant inflation the Fed and BLS have struggled to hide. However, the jig is finally up and as credit dries up the stark reality of a very poor miserable nation shows its ugly head.
I know it's bad because even the RE economist on the radio this morning, for the first time in a decade, said the housing market looks "bleak."
.......Deflation erodes societies, and it guts entire economies like so much fish. Deflation is already a given in Japan, and in most of not all of southern Europe. Where countries might have saved themselves if only they weren’t part of the eurozone.
What a piece of shit article.
It seems to imply that once down the Keynesian road to hell you must stay on the Keyensian road to hell. News flash: Debt and the monetization of it leads to the boom that is inevitably followed by a bust. What makes it really hard (or harder than it needs to be), is the bootfucking a country's currency takes in the process.
Price declines are the inevitable consequence of the boom bust cycle that arises from inflating, or as I like to call it, batshit crazy Keyensian monetary policy. And when the author of this article writes that: To hold onto his €500,000-a-year business, Iaquone says he is cutting prices. By doing so, he is helping fuel the chain of deflation from consumers to other companies., what he fails to recognize is that the capital malfeasance, which occurred in response NOT TO quantity demand, but rather to rising prices (because of fiat expansion and debt monetization - aka currency boot fucking) - markets must, therefore, clear through precisely the opposite mechanism! That's the irony, and is what Raúl Ilargi Meijer does not understand. The correction is not a supply/demand correction, it is a price correction as a result of changing the available fiat or credit.
Gesepi is probably going to lose his business - just like the shale players who levered up chasing $100 oil. Should demand suddenly start to increase just......because? Of course not!! This is the composition of a correction where assets exchange hands from the gamblers to the prudent, at 10 cents on the dollar - which, on a related note is exactly the process that will start to occur in this industry. This is a demand problem plain and simple - because it never really changed and nor should it have. And in a deflationary environment the price of all things fall - including land, labor, and capital. This is what is supposed to happen in a Austrian correction boom bust cycle. It simply goes like this - just like it did in 1980 when i seen oil rigs just laying in the ditches when price collapsed - assets will be exchanged for $0.10 on the dollar (and they did) as the levered shale players (back then it was the drillers) default. New shale operator will resume with zero debt servicing costs. Labor and lease rates will also be less. Profitability resumes at $60 - and so on because debt and the monetization of it was/is the problem - not demand.
Perhaps Janet will start buying futures contracts to try and put price supports or a floor on the product but because demand is a function of quantity and not so much about price - it won't matter - because solvency depends on receipts and receipts depend on VOLUME sold (delivered). Right now you can swing a baseball bat and hit oil particles. In my opinion, therefore, I don't see this happening. Prices will continue to fall. Oil prices can and will decline for a lot longer and further than most people think. And no amount of Keynesian magic will reverse this.
The sooner people start remember why market based interest rates were/are the most important price signal in the market place, the sooner the Keysnian ideolgues will be understood for what they are - lunatic fiscal and monetary privelaged industrialists who are the always the first to benefit from their asinine policies, but, the last to be held accountable for the pain and suffering that inevitably ensues as a result.
As for Gesepi: His business might close, but, another will surely open - one that makes calcualtions based on volume and not price.
When you change money - you change everything - and none of it is real.
The simple fact is the growth model has reached the end of its useful life given the finite nature of our planet. The deflation we currently have will be gone when the current excess capacity leaves the system.
Its obvious the time has come to focus on what CHS calls degrowth. Looking at history as recently as the late 1700's shows the way. The average person was a generalist then. There is nothing wrong with living within one's means and performing life's tasks individually.
Kondratieff Wave. Winter is here.
"You can’t force people to spend, not if you’re a government..." Ever heard of Obamacare?
One thing the morons in charge NEVER take into account is there is essentially a MAX level of consumption. Their models are all based on the flawed exponential model - same store sales have to increase x% each and every year, year after year, forever. GDP has to increase at x% each and every year, forever.
However, longer term this is impossible to sustain. To continually increase consumption this requires the money to be able to do so - wages HAVE to increase at least at the rate of inflation, which they are not and have not for a long time. If wages stay flat, consumption drops due to inflation and eventually goes the other way. Borrow and spend only works when people have rising wages to at least keep up with inflation.
People do spend - but even if you just hand out money like free water, at some point there is nothing left to buy. Even if you were handing out free money, people are not going to buy a new TV every week, not going to buy clothes every day, not going to buy a new car monthly. At some point you have consumed all you are going to consume.
If the outlook going forward is poor (I might not have a job next year, I might get my salary cut etc), even when someone hands you free money you just put it in the bank.
If you gave each American $500 per week in cash, tax free, initially the spending would explode. Prices would likely push higher as people do not care about price as much if they are spending someone else's money.
But as time wears on, the novelty of blowing the cash wears off for many. There are only so many TV's you can buy, so many new clothes, so many iphones.
Instead of spending on impulse items or wasting it, people would start realize that they can save it and have a lot more in a few years. Also, most would realize rather quickly that the windfall likely will not last forever and will go away at some point - AND they do the opposite of what the intention was - they save instead of spend.
Instead of spending, many now save and the economy tanks - but not really. It only tanks from the artifically created level based on free money.
To those in the govt - "tanking" = deflation = evil.
Deflation is the natural path of many areas of the economy due to technological progress - that should be good for the average citizen to improve their life, have more and work less.
However, it is bad for large asset holders and those who loan money. You can figure out which side the govt is on.
I love "IT", just saw 'Samsung Galaxy Tab S4.8 LTE' just 329€ at Amazon.it (Italy) instead of at least 469€ at Amazon.de (Germany). Deflation doesn't heart me much unless you are on the right side of the game (:)) And boosting up all your business--equipment in the same leads to more productivity, competitiveness, wages, justice (spending-party in the Mediterranean countries lasted long enough). Finally differences inside the Eurozone need to be expressed in some way - the other way is called "transfer union" which finally paralyzes both sides.... To Italy doesn't happen anything beside of the fact that they go back where they came from - before the Euro-endless-credit-Party and German decline started. The Euro is and remains destructive poison for the health, democracy and political culture in Europe.
http://www.ft.com/cms/s/0/7df68668-7019-11e4-bc6a-00144feabdc0.html
While abundantly accommodative policy has boosted the price of risk assets, the rising tide of asset prices has not lifted all boats. Rather, capital market pricing has disconnected from economic fundamentals. Are we to assume that fundamentals will catch up? Or should prudent investors start pruning risk from their portfolios?
The Federal Reserve implemented extraordinary measures as a crisis management tool, yet now seems to lack conviction on when to normalise rates. Zero rates were supposed to end when unemployment dropped below the 6.5 per cent “trigger”; that “trigger” became a “threshold” and that “threshold” vanished into the policy ether even as unemployment continued to improve.
Unwilling to declare victory and withdraw, it seems the Fed has forgotten the proper role of interest rates: to ensure that scarce resources are put to their best use.
Artificially low rates mean that improperly qualified borrowers obtain loans and then bid resources away from those who might employ them more productively. Along the way leverage accumulates, increasing financial risk and market volatility. One does not have to look far to see signs of building financial excess.
Issuance of covenant-lite loans has dramatically expanded, share repurchases have become a key driver of stock valuations and short maturity interest rates remain in negative real territory. These imbalances have elicited mostly yawns from Fed officialdom. Why raise rates, goes the thinking, with prices tame and labour still slack?
Alas, low inflation does not immunise the economy from financial deleveragings and economic downturns, as the 2008 housing meltdown demonstrated. A central bank that ignores credit market excesses, preferring to believe it can dial up or down whatever level of wage growth or unemployment it considers optimal, is one that does not understand its limitations.
If growth were a simple problem of credit and demand management, we would not be having this discussion. If wealth followed in the wake of money printing, Venezuela and Zimbabwe would be members of the G20. Or consider the eurozone, one central bank but 18 countries – some with Great Depression unemployment levels and others with full employment. This disparity of performance cannot be explained by interest rate policy. Rather, it is attributable to relative competitiveness between states.
In a global economy, nations offering consumers what they want at prices they are willing to pay capture their fair share of global demand. Those that deploy their productive resources inefficiently experience disappointing wage growth and high unemployment.
In the US, continued wage stagnation and low labour force participation suggest the Fed’s policies cannot be effective without a more competitive domestic economy.
The Fed’s reluctance to pull the plug on zero interest rates is understandable. Since low rates have enabled activities that would not survive a rate rise, a renormalisation will be painful. Rising rates will price out marginal borrowers. Default rates in corporate and high yield loans will rise, pushing risk premiums wider. Higher capital costs will damp asset prices. So why do it?
Because “kicking the can” means the inevitable deleveraging will be more painful. Sustainable growth comes from improvements to work process and product. Merely adding leverage to a business does not improve its efficiency; higher home prices do not increase the wages of those in the home.
The Fed can multiply the quantity of funds, but that increase does not add to the nation’s capital stock, enhance the skill of its labour or expand its access to natural resources. The game of pretend ultimately has to end. For investors, the question that matters is when and how.
When the end game comes, leverage will be forced out of the system and asset prices will fall. If the Fed is willing to recognise that ultimately its policies cannot dictate economic realities, rate rises should begin soon, presumably in 2015.
A path of proactive, controlled deleveraging means the pain will come sooner, but the severity will be relatively muted. If the Fed fails to remove the punchbowl, the belated deleveraging will come anyway catalysed by the capital markets, which will not be pretty.
the "experts" don't know how to solve the problem to S T A S I S
Overlayed the CRB and S&P500
http://bullandbearmash.com/pending-stock-market-train-wreck-deflation-pi...
Divergence to the max - aka full retard. ONWARD!!!!!!!!!!!!!!
more nonsense, all propaganda crap today on zh.
we need to cull the population, deflation is bad
fuck off.
keep your eye on the ball folkes, the BIS will give you inflation, deflation, ressesion, depression, global financial meltdown, or war, you pick your poision, (via your elected, and unelected officials), the BIS stock-holders will still make money, guarenteed.
Your emphasis on lower spending during deflation instead of falling prices is a very important distinction.
When people are scared about the future, lower prices will not lure them to spend.
People are only forced to buy cheap food and this item should be the all-important inflation indicator and nothing else.
Food prices rose 30% in the last 12 months, yet the MSM has the public placated with their bogus basket of goods that measure "low" inflation at less than 5%.
Ironically the all important food price increase isn't even counted.