Where Is the Panic Over Deflation?

[CaseyJones]

http://www.bloomberg.com/news/2013-09-26/where-is-the-panic-over-deflation-.html

A quick point worth noting from this morning's gross domestic product report. The report is largely a yawn, containing few interesting revisions to earlier estimates of economic progress in the second quarter. But there's one number that caught my attention. The Bureau of Economic Analysis has revised its estimates for the personal consumption expenditures price index. It's an important number, because this is the index the Federal Reserve targets. And remember, it's aiming for inflation of 2 percent.

Instead, the index fell in the second quarter. That is, the U.S. is experiencing deflation.

I won't overstate this. It's just one quarter, and it's evident in just one index, and even when I cherry-pick this interesting number, prices aren't really falling very quickly. The PCE deflator fell at an annual rate of only 0.1 percent in the second quarter.

 

[osan]

http://www.bloomberg.com/news/2013-09-26/where-is-the-panic-over-deflation-.html

This further adds to my suspicions that highly computerized electronic currency is a new wildcard that few seem to give its due consideration. Deflation is the worst possible thing that can happen to the vast majority of Americans at the moment, as they are debt-heavy and have little or no savings. Deflation may drive prices down, but that is not good news because it will also drive down wages, yet leverage in absolute numbers will remain the same and grow proportionally speaking in terms of value relative to income for any given individual. That, of course, means that cash flow will be tighter for just about everyone and those on the edges of "making it" stand an ever greater chance of going over the financial precipice. This condition could spell ruin for tens of millions of Americans and it would not surprise me to find that this is the intention, being as none of this result can be credibly assessed as "organic". It is the result of manipulation which in turn stands to wreck a lot of lives.

Well, one thing we cannot claim is a boring environment.

 

[Seraphim]

If deflation takes over Bernanke/Yellen will double down on QE, remove the 0.25% rate they pay banks to hold their money at the Fed and order them to lend like mad men.

Would not surprise me at all.

 

[specsaregood]

If deflation takes over Bernanke/Yellen will double down on QE, remove the 0.25% rate they pay banks to hold their money at the Fed and order them to lend like mad men.

Would not surprise me at all.

Who will they be lending it to?

 

[Zippyjuan]

If deflation takes over Bernanke/Yellen will double down on QE, remove the 0.25% rate they pay banks to hold their money at the Fed and order them to lend like mad men.

Would not surprise me at all.

One quarter of one percent is not much of an incentive to not make loans when a mortgage can earn them about five percent (twenty times what the Fed is paying) or a car loan can bring seven or eight percent. That is not what is holding them back. Demand for borrowing still isn't there. You can't "order" or otherwise "force" them to make loans if consumers and businesses don't want them.

 

[Madison320]

When has a fiat currency ever deflated to any significant extent?

 

[Zippyjuan]

Japan- for the last 20 years is the biggest example.
http://www.independent.co.uk/news/b...-as-giant-stimulus-package-bites-8792541.html

Japan's deflation curse takes a pause as giant stimulus package bites

Japan's 20-year battle against deflation could be at an end as the world's third-biggest economy saw rising prices for the second month in a row.

The latest figures showed prices rising at an annual rate of 0.7 per cent in July, accelerating from 0.2 per cent in June, as the Bank of Japan attempts to hit a 2 per cent inflation target with a huge monetary policy stimulus and shake off decades of economic malaise.

A

 

[fisharmor]

When has a fiat currency ever deflated to any significant extent?

Here, in the late 1990s.
There was a time in 1997 I think where gold was $300 an ounce and you could fill up your tank for under a buck a gallon.

 

[Seraphim]

The Fed and the Primary Dealers are in cahoots - the Primary Dealers OWN the Fed.

They will preserve their system by any gimmick necessary. So yes, they can order that. If not the other primary dealers can make the one non compliant party bankrupt over night by calling on their loans simultaneously. See; Lehman Brothers.

Also; 0.25% on billions of free cash is enough incentive if the alternative is too much inflation.

If someone GAVE you 100$ Billion in a risky market, then offered a risk free 0.25% (as opposed to 0% yielding cash) you would take it in a heartbeat.

One quarter of one percent is not much of an incentive to not make loans when a mortgage can earn them about five percent (twenty times what the Fed is paying) or a car loan can bring seven or eight percent. That is not what is holding them back. Demand for borrowing still isn't there. You can't "order" or otherwise "force" them to make loans if consumers and businesses don't want them.

 

[matt0611]

Here, in the late 1990s.
There was a time in 1997 I think where gold was $300 an ounce and you could fill up your tank for under a buck a gallon.

Wow. That sounds horrible.

Glad those days are gone.

 

[Zippyjuan]

The Fed and the Primary Dealers are in cahoots - the Primary Dealers OWN the Fed.

They will preserve their system by any gimmick necessary. So yes, they can order that. If not the other primary dealers can make the one non compliant party bankrupt over night by calling on their loans simultaneously. See; Lehman Brothers.

Also; 0.25% on billions of free cash is enough incentive if the alternative is too much inflation.

If someone GAVE you 100$ Billion in a risky market, then offered a risk free 0.25% (as opposed to 0% yielding cash) you would take it in a heartbeat.

Given the choice between 0% return , 0.25% return or 5% return on your money, which would you choose? Two year Treasury notes offer a higher return that one quarter of one percent (roughly double).

 

[Seraphim]

The Primary Dealers have parked the free cash at the Fed and in Treasuries.

They've chosen both.

Given the choice between 0% return , 0.25% return or 5% return on your money, which would you choose? Two year Treasury notes offer a higher return that one quarter of one percent (roughly double).

 

[Madison320]

OK, so I got 2 examples where there was very slight deflation. I thought the big fear was a deflationary death spiral. My point it that in the entire history of fiat currencies, 99.99999% of the time they get inflated, in other words they lose value. I think this proves that the theories on why we might have serious deflation are flawed. Specifically the flaw is confusing currency with credit.

 

[Zippyjuan]

Fiat currency is not unique in that respect. You can't find examples of long deflation on "hard money" either. Deflations are usually associated with recessions and not long term. Deflation may mean lower prices but they are also usually associated with lower wages and rising unemployment as employers try to lower costs to be able to afford to sell their goods and services for less.

Our own history:

http://commons.wikimedia.org/wiki/File:US_Historical_Inflation_Ancient.svg

 

[Brian4Liberty]

Where Is the Panic Over Deflation?

It's been in Helicopter Ben's head for many years...

 

[Acala]

I would welcome deflation. But it ain't gonna happen to any significant extent or any serious length of time unless the Federal government overtly defaults on its debts and I consider that to be HIGHLY unlikely.

 

[jon_perez]

So Gary Shilling is still pwning Peter Schiff...

 

[Natural Citizen]

Oh, I think we'll see a bank holiday sneak in. Absolutely.

I'd(id) pull everything out now but that's just me.

 

[Madison320]

So Gary Shilling is still pwning Peter Schiff...

How do you figure? We had 14 trillion in debt when that interview was made and we were still on QE2. Now we have 17 trillion and QE infinity. This story is not over.

 

[Seraphim]

Lol we're beyond QE2. QE3 was implemented and then a QE4eva extension of it.

Schiff has been right every step of the way. Large scale macro events are slow moving train wrecks.

How do you figure? We had 14 trillion in debt when that interview was made and we were still on QE2. Now we have 17 trillion and QE infinity. This story is not over.