Your Prediction for End of Deflation/Start of Inflation

[Solidarity]

This is a very key question that will either make or break a lot of people. Cash right now is King... Pound/Euro is falling like a brick and are looking to be terrible investments both long term and short term. Yen is doing quite well but is still subject to a substantial devaluing ala UK Pound. Yuen looks like the only safe currency right now.

For the future, the next pivotal point in this recession will be when all the new money that has been printed will hit the street. It seems like when the credit markets start to ease up and banks start giving out more loans, we will see inflation set in. Timing this will be key on getting the maximum return on your investments. If you manage to time this right, get out of all your cash positions and move into gold you will make out like a bandit.

So the big question is, when does deflation turn over into inflation??

 

[RonPaulwillWin]

Falling prices doesn't necessarily mean deflation. Deflation is the contraction of the money supply, which is not happening right now.

 

[Solidarity]

Falling prices doesn't necessarily mean deflation. Deflation is the contraction of the money supply, which is not happening right now.

Has the money supply shrank? I think we have seen asset price deflation due to restriction of credit, repricing of risk, paradigm shift from consumerism to saving, etc etc etc but I do not think we have seen a shrinking money supply. I think we have seen a massive build-up in the money supply but 0 velocity.

The USD is also a flight to quality play and will rise against something else. If that something else is falling (I know you know this, just saying it to make a point I guess) then the USD will rise against it. I expected a falling USD as well but they realized that there was such a flight to quality and other currencies that were getting crushed due to their intrinsic fundamentals, that the USD would not yet suffer a nasty fall. I do see it happening though and my tip off/canary in the coal mine will be velocity.

 

[Isaac Bickerstaff]

If by velocity you mean the number of times a dollar changes hands before it is used to retire debt, I can agree with you somewhat. The absolute size of the money supply has virtually no impact on the price level at this time.
The only information about the money supply that will give you any information is the money supply relative to the total outstanding debt, and to a lesser extent how much of that debt is held by government vs private sector.
.
From that information, you can figure out the velocity (somewhat). The destruction of money is the most constant of the variables, because it depends on interest rates and size of debt. Creation of money is a fickle bitch to predict in tough times. In good times it is easy to predict what the creation of money will be because you can assume that banks will lend out to capacity and there will be plenty of people to borrow. Now, we cannot assume that. It seems the only reason there is new money being injected into the system is the irresponsible bailouts coming from Washington.

The level of consumer prices will remain low(ish) if government continues to dump money into the economy which will satisfy the demands of the privately held debt, and continue to borrow to pay the interest on the public debt. Once government demands higher taxes to try to service the public debt, merchant overhead will explode and prices will begin to rise--possibly rapidly.

If lending stopped altogether, the functional money supply would drop to zero in just a few months. The uber rich would still have plenty, but their federal reserve notes would lose value as people begin to use alternate currencies and barter.

This is the wonderful world of debt-backed fiat currency.
Nothing will save the FED dollar. The bailouts will continue until the private sector begins borrowing again or we decide we have had enough with the FED and their dollar.

 

[Crash Martinez]

Um. It's January 2009.

 

[not.your.average.joe]

I believe it will be when other countries stop financing our debt, which could be this year.

 

[icon124]

I hate to inform you of this, but we are no longer in 2008.

 

[Crash Martinez]

Um. It's January 2009.

...

I hate to inform you of this, but we are no longer in 2008.

 

[polomertz]

1913

 

[Crash Martinez]

1913

win.

 

[Wickwire]

Why not throw November of '99 or May '05 in the poll while you're at it? Those dates are just as relevant as the ones in your poll.

It looks like you got your answer anyways. 1913.

 

[Wickwire]

1913

Great answer and even better avatar.

 

[Solidarity]

LOL oops

08=09
09=10

I was running on pure caffeine at the time so forgive my lapse