Deflationary Hurricanes to Hit U.S. and U.K.

[wirenut]

http://globaleconomicanalysis.blogs...hurricanes-to-hit-us-and.html?ref=patrick.net.
I believe we are going to see a deflationary depression and not a inflationary one. The UK is probably going to raise rates tomorrow since they fear inflation is getting out of control which will almost force our fed to raise rates to keep the dollar from weakening further. Things are really looking interesting.

 

[jd603]

Back to my original argument!

INFLATIONARY OR DEFLATIONARY?


If fed doesn't raise rates, it will be inflationary. If he does, a LOT it will be deflationary but if the fed raises rates a LOT kiss the economy goodbye and hello chaos.

Edit: or not... its articles like this that confuse me and make me unsure how to manage my money. I guess I will diversify until the light bulb goes on. , by that I mean , gold, cash and shorting the DOW...

 

[muh_roads]

The only way you could stem the inflation is to raise rates to 20% like in the 70's. Can you really see Bernanke doing that in this economy? Peoples wages aren't rising with inflation like they were back then.

 

[jd603]

I know, massive rate hikes will explode this economy, explode it. At the same time, despite Benny pumping money out cheap, the banks are tightening credit.

There's liquidity going to pay down these banks losses , they aren't using it to lend. So inflation of the dollar internationally and deflation of the dollar domestically? Maybe thats what we'll see. Of course, inflation internationally will still mean high gas,oil,food and other commodities.

Edit: i mean, deflation of asset values here, but inflation of the dollar. ?

Edit2: I guess in austrian economics inflation/deflation refers to the currency only, but price deflation will be here in a lot of things as nobody buys, nobody has credit to buy.

The only way you could stem the inflation is to raise rates to 20% like in the 70's. Can you really see Bernanke doing that in this economy? Peoples wages aren't rising with inflation like they were back then.

 

[jd603]

Interesting........

Gold Up

Gold was up big today. Some look at gold as a sign of inflation, some as an inflation hedge. The reality is that it is neither, except perhaps in the extreme long term. There was positive inflation from 1980 to 2000 yet gold fell from 800 to 250. As an inflation hedge, it would have been hard to pick a worse one! And if gold is rising because of inflation now, why was it falling for 20 years when there clearly was inflation all the way? Let's look closer.

Historically, there are times gold does well: Hyperinflationary times and Deflationary times. Gold does poorly under more normal conditions, and gets hammered in disinflationary conditions, a falling but positive rate of inflation.

If gold is signaling anything right now, it is the further destruction of fiat credit (deflation) as we move from disinflationary conditions to deflationary ones.

Gold rose in the great depression, and it is poised to do so again. Recent action (the last several years) in gold is very consistent with deflationary theory about the destruction of credit. Gold, unlike fiat, is no one else's liability. Money with that attribute (and gold is money), should rise under these conditions.

 

[youngbuck]

Interesting article, but now I'm even more confused as to what the future holds for us economically.

 

[Zippyjuan]

Nobody knows for sure.

 

[american.swan]

If this article is correct that prices will be falling because no one can buy them then maybe Big Ben is right in an abstract way by saying there isn't any inflation....That doesn't mean we aren't in for a depression.

I think the talk of hyperinflation comes from the idea of foreign governments unloading their worthless dollars for gold on us. Then the country will be swamped with worthless paper in some sense.

 

[DrCap]

a couple of thoughts...

1). Mish is awesome, I read his posts and the comments before I come here now... though I'm not sure I buy into his take on deflation. He is well versed on Austrian economics and clearly supported RP.

2). When he says deflation he means in the true sense of decrease in money supply (and credit) not necessarily falling prices, but obviously we are having falling prices in the housing market, real estate in general, companies (the price of stocks) and other things (like cars/boats/used stuff etc.)

3) I questioned this a while back... http://www.ronpaulforums.com/showthread.php?t=127381

4). I have diversified myself in most every direction because I can't read what's happening in the big world, and so far such has seemed to work well. Diversification makes the market boring since it goes up here and down there but evens out overall. But I'm becoming more bearish in my outlook and have been thinking about moving more out of the markets if there is another pop.

5). I'm concerned about american.swan's point of foreign unloading of dollars (as per Schiff) and as we see the Euro go up to $1.60 we may again see intervention to 'save' the dollar. Behind closed doors though, whoever's propping up the dollar is trying to push the boulder uphill and of course it will roll back down on them. There has to be an undercurrent of foreigners wanting to unload their dollars, though Bud doesn't want to sell out to foreigners

your government will not save you from the mess it created for you but I'm not sure anyone knows how this will all play out in the end.

 

[danberkeley]

If this article is correct that prices will be falling because no one can buy them then maybe Big Ben is right in an abstract way by saying there isn't any inflation....That doesn't mean we aren't in for a depression.

I think the talk of hyperinflation comes from the idea of foreign governments unloading their worthless dollars for gold on us. Then the country will be swamped with worthless paper in some sense.

If people stop buying stuff because they cant afford it, then producers will decrease capacity. I.e. the airlines in the US are raising fares and decreasing capacity. Why? Because the airlines are operating at a loss and, therefore, raise fares. However, if the airlines raise fares, that means that some customers will be priced out of the market. That means that there is less demand for air travel, therefore, airlines decrease capacity.

the same applies to other industries. if chinese companies that produce shirts need to raise prices because of the falling dollar, then some consumers will be priced out of the market. therefore, the shirt producer can either produce too many shirts and end up selling them at a loss or it can raise prices and produce less.

of course, this comes after an initial decline in prices. after (or while) the retailers (such Macy's, Walmart, Home Depot, etc) are finished selling their excess inventories (or during), they will order less merchandise from their suppliers and raise prices so that they can make a profit.

 

[jd603]

Fundamentals are terrible for the US economy.

I think bombing Iran would be the final nails in our coffin (Even if Israel does it without us).

I am to try playing some short ETFs

Also may get some gold/energy related stocks. Things that should make money at within 6-18 months if not sooner etc.

I'm seriously close to going into full survivalist/wealth preservation mode. If Iran is bombed I will be taking more drastic steps. Otherwise I will just be keeping a close eye on everything and trying to make the best moves financially.

a couple of thoughts...

1). Mish is awesome, I read his posts and the comments before I come here now... though I'm not sure I buy into his take on deflation. He is well versed on Austrian economics and clearly supported RP.

2). When he says deflation he means in the true sense of decrease in money supply (and credit) not necessarily falling prices, but obviously we are having falling prices in the housing market, real estate in general, companies (the price of stocks) and other things (like cars/boats/used stuff etc.)

3) I questioned this a while back... http://www.ronpaulforums.com/showthread.php?t=127381

4). I have diversified myself in most every direction because I can't read what's happening in the big world, and so far such has seemed to work well. Diversification makes the market boring since it goes up here and down there but evens out overall. But I'm becoming more bearish in my outlook and have been thinking about moving more out of the markets if there is another pop.

5). I'm concerned about american.swan's point of foreign unloading of dollars (as per Schiff) and as we see the Euro go up to $1.60 we may again see intervention to 'save' the dollar. Behind closed doors though, whoever's propping up the dollar is trying to push the boulder uphill and of course it will roll back down on them. There has to be an undercurrent of foreigners wanting to unload their dollars, though Bud doesn't want to sell out to foreigners

your government will not save you from the mess it created for you but I'm not sure anyone knows how this will all play out in the end.

 

[Allen72289]

Essentials will inflate, unnecessary pleasures of life will deflate (amusement parks etc.) as we are already seeing.

I suppose some tangibles will deflate because it's cheaper to sell it here than abroad..

idk.

we'll just buy fuel, food, clothing and shelter.

70% percent of the economy will go bye, bye.

I suppose foreigners will come here due to exchange rate idk.

 

[misericordia]

If it plays out the way I think it might, the AMERO is gonna come riding in on a white horse to save America, or that's what they'll say after the crash.

 

[CUnknown]

This guy could be correct about deflationary spirals.. in fact, this is what the Fed and Congress are worried about, right? They don't give a crap about inflation, obviously.. so, as this guy points out, they lower rates, and Congress passes out cash to everyone to ward off deflation.

However, I think Congress and the Fed can handle the deflation, most likely. They will just pass out more cash (more "stimulus"), as this guy points out, even. Since he has thought of this himself, I don't get why he still thinks there would be deflation. Congress can pass out all the fiat cash they need to... right?

Of course that would bankrupt the country, and if there was still a recession (due to oil prices, say), then the debt as a % of GDP would skyrocket, and the government would no longer be able to afford (take your pick): 1) our military, or 2) medicare.

So, it's bad no matter how you look at it, but still, I think that the current system has a few more years of death-spasm to go before it finally gives up the ghost. As long as the government can take on more debt, the system can continue without massive deflation.

That's the way I see it, anyway.

 

[jd603]

Exactly, how long can they ward things off, I know they at least want to do it until the elections. 2-3 years I wouldn't doubt, this economy has been dead for awhile and yet it rolls on so I really don't know.

The other thing is, the longer they postpone the inevitable, the worse it will be....

This guy could be correct about deflationary spirals.. in fact, this is what the Fed and Congress are worried about, right? They don't give a crap about inflation, obviously.. so, as this guy points out, they lower rates, and Congress passes out cash to everyone to ward off deflation.

However, I think Congress and the Fed can handle the deflation, most likely. They will just pass out more cash (more "stimulus"), as this guy points out, even. Since he has thought of this himself, I don't get why he still thinks there would be deflation. Congress can pass out all the fiat cash they need to... right?

Of course that would bankrupt the country, and if there was still a recession (due to oil prices, say), then the debt as a % of GDP would skyrocket, and the government would no longer be able to afford (take your pick): 1) our military, or 2) medicare.

So, it's bad no matter how you look at it, but still, I think that the current system has a few more years of death-spasm to go before it finally gives up the ghost. As long as the government can take on more debt, the system can continue without massive deflation.

That's the way I see it, anyway.

 

[rapidtrends]

Some thoughts:

1. The country is already bankrupt, so we wont bankrupt it already
2. Its possible to have massive deflation and prices still rise. Why? If we see banking failures, they create counterparty losses for every bank that fails. In other words, bank A fails, it creates losses for banks B, C, D, E and F. On and on, like dominoes. This deflates the overall money supply as the credit is written off and removed from the books. During this time the Fed will pump hundreds of billions into the system trying to save them. This creates hyperinflation, as those dollars will find their way into commodity prices.

As dollar continues to crash, and the American people find their nation crumbling around them, the Dollar will eventually have to be replaced with another system. I think we have only 3 possible scenarios:

1. We will see the Amero
2. The current "probe" of Americas financial system by the IMF will be declared an "AHA, we caught you", therefore we can actually police the worlds banks! And they will take a shot at creating a World Central bank with an international currency. This is a long shot, but not outside the realm of possibility.
3. A gold back or gold certificate ratio system.

I do not know which of the three is most likely. I think they will try for all the marbles with a World Central Bank. When you see Barclays denouncing the Fed, you know the International Banks that hold the true ownership of most of the worlds financial system are about to shoot it in the head and put it out of its misery.

If the World Central Bank does not fly, they will go for plan B, which is the Amero and unifying Mexico/USA/Canada under common currency system.

Last and final would be a cert ratio system, and only if we were looking at civil war over the Amero, which is certainly possible.

Some of you are going to think Im nuts, and thats ok, because I have been called that before, but was also right before.

 

[Apparition]

Some of you are going to think Im nuts, and thats ok, because I have been called that before, but was also right before.

"Nuts" is almost always a relative term, yeah?

 

[jd603]

Nuts? This is the Ron Paul crowd. We are mostly open minded people here.

I agree there is something going on and its not transparent. Sometimes I wonder if all these financial orgs are talking down the US economy to milk the commodity wave and make their money back on their mortgage losses.

So it might not be exactly what we think, but there IS something going on, and couple that with BAD economic fundamentals in the US and its enough for me to plan accordingly as far as managing my money.

I'm betting on at least a repeat of the 80s economic problems. Of course, we're in much more debt now, so that makes me wonder if foreigners will buy enough assets to keep us afloat through it or if they'll just let us default and depress, THEN come in and stake their claims.

Some thoughts:

1. The country is already bankrupt, so we wont bankrupt it already
2. Its possible to have massive deflation and prices still rise. Why? If we see banking failures, they create counterparty losses for every bank that fails. In other words, bank A fails, it creates losses for banks B, C, D, E and F. On and on, like dominoes. This deflates the overall money supply as the credit is written off and removed from the books. During this time the Fed will pump hundreds of billions into the system trying to save them. This creates hyperinflation, as those dollars will find their way into commodity prices.

As dollar continues to crash, and the American people find their nation crumbling around them, the Dollar will eventually have to be replaced with another system. I think we have only 3 possible scenarios:

1. We will see the Amero
2. The current "probe" of Americas financial system by the IMF will be declared an "AHA, we caught you", therefore we can actually police the worlds banks! And they will take a shot at creating a World Central bank with an international currency. This is a long shot, but not outside the realm of possibility.
3. A gold back or gold certificate ratio system.

I do not know which of the three is most likely. I think they will try for all the marbles with a World Central Bank. When you see Barclays denouncing the Fed, you know the International Banks that hold the true ownership of most of the worlds financial system are about to shoot it in the head and put it out of its misery.

If the World Central Bank does not fly, they will go for plan B, which is the Amero and unifying Mexico/USA/Canada under common currency system.

Last and final would be a cert ratio system, and only if we were looking at civil war over the Amero, which is certainly possible.

Some of you are going to think Im nuts, and thats ok, because I have been called that before, but was also right before.

 

[youngbuck]

I agree there is something going on and its not transparent. Sometimes I wonder if all these financial orgs are talking down the US economy to milk the commodity wave and make their money back on their mortgage losses.

So it might not be exactly what we think, but there IS something going on, and couple that with BAD economic fundamentals in the US and its enough for me to plan accordingly as far as managing my money.

I'm betting on at least a repeat of the 80s economic problems. Of course, we're in much more debt now, so that makes me wonder if foreigners will buy enough assets to keep us afloat through it or if they'll just let us default and depress, THEN come in and stake their claims.

That is very close to what I've come to think. It will be very interesting to see how this plays out.

Makes sure you have food, water, and bullets JUST IN CASE

 

[jjbond007]

That is very close to what I've come to think. It will be very interesting to see how this plays out.

Makes sure you have food, water, and bullets JUST IN CASE

Good idea!

i've read somewhere that it's Inflation NOT Deflation,a nd that US is heading for sharply higher interest rates but either way, I'll still make sure I got myself some food,water and bullets!