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Deflation or Inflation?


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Price for food and services have gone up dramatically over the years, commodities have gone down quite a bit this year, but will this last?

 

I hear Mr. Obama is talking about a spiral of deflation but government debt and spending is at extreme levels.

 

I wonder what everybody else is thinking.

 

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A small amount of deflation can be good for the ordinary person, as it gives them more purchasing power.

A lot of deflation is bad, although quite where one draws the line between "small amount" and "lot" is open to debate.

 

For most big businesses, inflation is preferable, as they then make more money.

 

So, between "the ordinary person" and "big business" guess who has the greater say?

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So, between "the ordinary person" and "big business" guess who has the greater say?

 

Actually the people do in the form of their purchasing power and choices. But unfortunately they don't always utilize their power in the most effective manner!

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smokey

A small amount of deflation can be good for the ordinary person, as it gives them more purchasing power.

A lot of deflation is bad, although quite where one draws the line between "small amount" and "lot" is open to debate.

 

For most big businesses, inflation is preferable, as they then make more money.

 

So, between "the ordinary person" and "big business" guess who has the greater say?

 

 

 

 

 

 

 

I think normal does not include the PHILIPPINES take gas.. right now it sells in the us for 23/1/2 peso a liter and here 42 so who is bullsh??ing who .. either the oil companies are sending buckets of money to someone or??? now i wonder how many liters a day are sold in the PI>...... and if there is an extra 15 p per liter or US 1:20 per gallon per day .... hummmmm way to many hands in the pot and the PI will never do what the rest of the world will expect as they dance to their own drummer

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America has some of the cheapest fuel, certainly much cheaper than the UK(*), or, to a lesser extent, Europe.

I believe that Indonesia and some of the Gulf States are the cheapest places to buy it, but apart from anything else, its a hell of a drive to fill the tank!

 

INHO, fuel is one of the worst comparisons, and one needs to look at a selection of things to get a fair measure of relative costs.

 

(*) I just paid = to 84 Peso a litre, down from the recent peak of around = to 100 Peso.

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LastManStanding

It is going to be deflation, big time. We are in a vicious cycle of forced selling. This is the mother of all feedback loops. Prices of everything are crashing and will continue to crash until the prices reach a certain point where the perceived risk matches the reward. It seems for most people the perceived risk is Armageddon.

 

The treasury is flooding the market with treasury bills trying to bail everyone out. The net effect of this if it goes to far is going to be crash in the bond market. At some point supply will swamp demanding leading to the crash in the bond prices. Yields will go up, forcing corporate bonds to match the yields to raise capital. Another wave of corporations will default as they be unable to raise money via bonds and especially via equity markets. Mortgage rates will rise and another wave of homeowners will default under the crushing strain of unemployment and higher payments.

 

The only way out of the mess at that point is to turn on the printing presses and inflate your way out of the mess. It would be a race to get out of the dollar. Gold will soar once again. In the end, the people going paycheck to paycheck will be fine, the rich will long have their assets in safety. The retiring middle class will be raped on all sides.

 

That's just how I see it playing out but knows. Its class warfare at this point.

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Mmm, I'm not so sure that printing ones way out of trouble is the only, or even the best, way.

However, what I think doesnt matter as I'm not the ones who will be deciding.

 

In the UK, we have a budget this coming week and the pundits expect the Govt to give away

billions (of OUR money) to try to keep things afloat.

Of course WE are the ones who will have to repay this in the future, when they, the present bunch of politicians, are sitting back and enjoying themselves.

 

Meanwhile, the other big news is Woolworths (UK).

They are in dire trouble and the entire company is up for sale for

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America has some of the cheapest fuel, certainly much cheaper than the UK(*), or, to a lesser extent, Europe.

I believe that Indonesia and some of the Gulf States are the cheapest places to buy it, but apart from anything else, its a hell of a drive to fill the tank!

 

INHO, fuel is one of the worst comparisons, and one needs to look at a selection of things to get a fair measure of relative costs.

 

(*) I just paid = to 84 Peso a litre, down from the recent peak of around = to 100 Peso.

 

It is back down to around $1.37/gallon today near Kansas City which is the cheapest in the country right now. $1.53/gallon here in the Minneapolis area. :)

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MattFromGA

There is always lots of misinformation about money and monetary history. I'm a big believer in Milton Friedman, and in his book "Money Mischief" he thoroughly discusses the direct cause of inflation and deflation. Inflation is caused by printing more money than the national output. Extra printing will not cause deflation, but will in fact cause inflation and could actually lead to hyperinflation. Anyone remember Brazil? From 1965 to 1989 Brazil averaged a yearly inflation of over 85%! They caused this by continually printing more money in response to their monetary problems. Many times, when hyperinflation occurs, the easiest answer is to dump the currency and try again. The only real cure to inflation is to slow down the printing press, however, Milton describes some side effects of doing this, including unemployment. He talks about it taking about 2 years for the decrease in money supply to help reduce inflation and for employment and real growth to start kicking in.

 

Its not clear to me why the current politicians believe a bailout is the best answer. Printing another trillion dollars the USA doesnt have is just going to make things worse. Inflation is a hidden tax on all of us in the reduced value of our money and earnings.

 

I would say that inflation in Cebu over the last 3 years hasnt actually been that bad. My own personal experiences has shown inflation in Cebu to be very roughly 7% a year. My rent has gone up 20% in 3 years (less than 7%). My UHT milk has gone up almost exactly the same (20% in 3 years). Chicken at the local roaster has experienced less inflation with an increase of about 15 pesos per chicken, from 130 to 145 in 3 years. My internet bill from Globe has not changed one peso in all this time.

 

There is no reason to cause or hope for deflation unless you have a fixed income or fixed cash base and want more purchasing power. Otherwise, stable and steady inflation around 2% or so would be fine. People can easily deal with a known and steady inflation. Its massive swings in the rate of inflation that cause big problems. Deflation is much more painful for society because everyone has already built inflation into their contracts and long term planning, so how do companies cope with salaries and so forth during a deflationary period? Layoffs.

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mattwilkie
There is always lots of misinformation about money and monetary history. I'm a big believer in Milton Friedman, and in his book "Money Mischief" he thoroughly discusses the direct cause of inflation and deflation. Inflation is caused by printing more money than the national output. Extra printing will not cause deflation, but will in fact cause inflation and could actually lead to hyperinflation. Anyone remember Brazil? From 1965 to 1989 Brazil averaged a yearly inflation of over 85%! They caused this by continually printing more money in response to their monetary problems. Many times, when hyperinflation occurs, the easiest answer is to dump the currency and try again. The only real cure to inflation is to slow down the printing press, however, Milton describes some side effects of doing this, including unemployment. He talks about it taking about 2 years for the decrease in money supply to help reduce inflation and for employment and real growth to start kicking in.

 

Its not clear to me why the current politicians believe a bailout is the best answer. Printing another trillion dollars the USA doesnt have is just going to make things worse. Inflation is a hidden tax on all of us in the reduced value of our money and earnings.

 

I would say that inflation in Cebu over the last 3 years hasnt actually been that bad. My own personal experiences has shown inflation in Cebu to be very roughly 7% a year. My rent has gone up 20% in 3 years (less than 7%). My UHT milk has gone up almost exactly the same (20% in 3 years). Chicken at the local roaster has experienced less inflation with an increase of about 15 pesos per chicken, from 130 to 145 in 3 years. My internet bill from Globe has not changed one peso in all this time.

 

There is no reason to cause or hope for deflation unless you have a fixed income or fixed cash base and want more purchasing power. Otherwise, stable and steady inflation around 2% or so would be fine. People can easily deal with a known and steady inflation. Its massive swings in the rate of inflation that cause big problems. Deflation is much more painful for society because everyone has already built inflation into their contracts and long term planning, so how do companies cope with salaries and so forth during a deflationary period? Layoffs.

 

Your right there.. but the problem is the solutions that most governments are currently looking at are boost.. not recover. There is lots of talk of throwing money on the fire in the hope that something will happen in a positive light. But the truth is its finished.. most county economies are either on or running close to empty. How can you stimulate a market when every one else is failing? Its impossible. The UK seems to mirror the U.S. on many things including the current boosting idea.. but its not going to fix this problem its huge debt thats the problem.. its the mentality of sticking it on other creditcards sooner or later you cant repay the debt and go bust or you have to tighten your belts and go into some hard times to recover.

 

Not sure how the effects are in the U.S. the election may have helped to stimulate peoples spending but to build from a recession?? In the UK no one trusts the government lies have stemmed from Tony Blair and the lies given to get the UK into Iraq and its poisioned the politics ever since. People without trust in the government are unlikely to be led up a cliff to be pushed off.. all the tax breaks and everything else thats constantly being talked about all i can hear is people going to pay off debts. Its not going to stimulate any retail or construction markets.

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eggnoggin

When the Soviet Uni- Mom and ruble collapsed... the new ruble(redeemable)and the old ruble(worthless) made the transition to common usage as people hid the new ruble under the bed and began spending the old... inflation is us chasing expectations.. deflation is expectations chasing us.... :biggrin_01:....most didnt know they wanted electric lights till they were invented :)

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  • 1 month later...

At this point in time American and other countries are experiencing deflation.

 

U.S 1929 Great Depression vs. 2008 financial, housing, credit crisis

 

One of the things that are the same between now and 1929 is the massive destruction of wealth. The details in the way it has happened is different. The similarities are the blind ignorant use of financial leverage and heavy debt. Back in 1929 the government did not intervene now the government so far is doing everything it knows how to stop the decline. In the last 80 years the worlds biggest economy the USA has successfully averted a repeat of 1929.

 

This brings me to the Smoot-Hawley Tariff Act, China seems to be going this way, China is much more like the USA of 1929 as they are a big net exporter. China has a budget surplus as we did in 1929 but it has a larger poor uneducated underclass. Contrasting to the USA we now have a very big deficit. This makes us more like the counties of Europe, they suffered much worse in the severe and protracted recession (Great Depression), Hitler came into power in a Germany with an unemployment rate of nearly 100%.

 

Note: All hell will break loose if China stops buying US T-bills.

 

This brings us to today. This is like so many other recessions if we are at the bottom but if the stock market continues to go down month after month it is a safe bet we are in deep sh*t. This equals the destruction of more and more wealth. My best guess is the market will rally in early 2009 then proceed on a steady down slope near the end of the first quarter 2009. But that is just a guess, anything can happen.

 

The Smoot-Hawley Tariff act that raised U.S. tariffs to record levels was very politically popular at the time and economist knew it would be a very big economic disaster which it in fact was. The most beneficial things for the government to do to help us recover may not be very politically popular and some of the most self destructive things to do will be very politically popular. This could be what pulls us into our new Great Depression.

 

http://www.contrarianprofits.com/articles/...depression/8563

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http://www.webtrading.com/gannforecast.htm

William Gann's Supply And Demand newsletter dated 11/23/1928 forecast sharp stock price declines in 1929. What is even more interesting is his reasons why. Here is one of them.

 

INSTALMENT BUYING: People are still living beyond their means and installment buying continues on a large scale. We believe it will yet prove to be the greatest menace to business and to the prosperity of the country. When depression sets in and unemploy

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smokey

well i sure wish that deflation would hit the LCD tv here in Cebu ... 47 inch for 5,000 us .. don't think so everything here is overpriced except labor .. the rich family's are raking in billions every year...

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well i sure wish that deflation would hit the LCD tv here in Cebu ... 47 inch for 5,000 us .. don't think so everything here is overpriced except labor .. the rich family's are raking in billions every year...

 

My latest readings on this converge on the notion that it is liquidation secondary to insolvency that we are seeing, not just deflation.

 

Basically, positions in commodities, stocks, real estate and other currencies are being turned into US dollars and T-bills, because debt must be repaid whilst asset prices are falling off the cliff in order to prevent bankruptcy. USD and TBills are the de facto gold standard in the absence of precious metal backed currency. The US economy is the biggest economy in the world. All roads lead back to Rome.

 

I'm repeating other things said in other threads here, but, basically, looking at the "flow of funds" (see graph), essentially the bailouts only match roughly the losses SO FAR. And yet, the money is not going to where it is needed to get the wheels turning.

 

Basically, MONEY MUST CHANGE HANDS frequently to circulate it, the so-called "velocity of money". In simple English "there must be business".

 

Why do we want to have money change hands?

 

Because:

 

GDP = AMOUNT of currency (eg the trillions in bailouts) multiplied by VELOCITY (IE circulation of $, how many times it swaps hands)

 

Without circulation, there is no stimulation of GDP. The compass points to contraction.

 

With minimal circulation, there is little reason for inflation of prices. People are saving, paying down debt, liquidating left, right and centre. No buyers, no demand. Supply and demand. Over-supply and under-demand leads to price falls.

 

You may have heard of the "Baltic Dry Index". This is an index which tracks the price of shipping for bulk commodities (coal, iron etc (coal + iron = steel, important for making things). It has dropped 94%. Basically, it means there's no one buying bulk commodities and shipping prices have gone to the dogs.

 

What does this mean for China? The message is China has stopped buying bulk commodities. Why?

 

China imports bulk commodities by the shipload, manufactures goods out of it and sends the goods on to the West.

 

China is a country of circa 56 minorites and an export economy similar in this respect to the US and the culture of avoiding mortgages, in the late roaring 20s USA, as pointed out here.

 

24 million rural Chinese per year migrate to the cities in the east of China looking for jobs. Now the factories are closing. No one is buying the Chinese goods like hitherto they were in US and Europe.

 

The Chinese export market is FUBAR. Hence the incredible shrinking Baltic Dry Index.

 

To quote a Chinese minister:

 

BEIJING, Dec 19 (Reuters) - Industrial output must expand by 12 percent next year :D in order for China to reach its goal of at least 8 percent economic growth, the Minister of Industry and Information Technology said on Friday.

 

Li Yizhong also told a work conference, which was webcast on the ministry's website (www.miit.gov.cn), that the global financial crisis would deepen further and would affect China's investment growth in the next two years and beyond. China's industrial output growth in November slowed to 5.4 percent :cry: from a year earlier, the weakest pace for a non-holiday month on record.

 

Li said the pace of industrial output growth had not bottomed out yet, suggesting that the target of 12 percent growth next year may be difficult to attain. B)

 

(Reporting by Langi Chiang, Editing by Jacqueline Wong) Keywords: CHINA ECONOMY/INDUSTRY

 

So, China is looking to heaven for 12% and yet they now have 5.4%, lowest on record, and still FALLING. "Dreaming" :lol:

 

From Nouriel Roubini (Nobel prize winner in Economics)

 

"In a country with the potential growth of China, hard landing would occur if the growth rate of the economy were to slow down to 5-6% as China needs a growth rate of 9-10% to absorb about 24 million new workers joining the labor force every year - macro indicators suggest China is heading for a hard landing"

 

So China is already at 5.4% and no sign of a reversal. Its time for butt vs concrete. Ass-oooo.

 

 

The Chinese will sensibly develop Keynes style infrastructure by injecting some of their 2 trillion reserves (which goes a long way there) into new big projects - rail, roads, dams, power.

 

Infrastructure will provide jobs and CIRCULATION of yuan. This follows the simple equation of stimulating economy to produce GDP. In the end, if they survive the domestic political volatility, they will have infrastructure and GDP. Nice. All set for the next leg of the commodity BOOM.

 

As for the US, hard times are ahead. Its a mature economy. No cash for infrastructure spending like the Great Depression. There is plenty more than fear itself to fear this time. Its a militarised society, thanks to the gun lobby. Savings per person are often zero or negative. There is often a big mortgage. And 2009 there will be no jobs.

 

This is what is different to the Great Depression, which was related to a credit bubble in the stockmarket ONLY, where stockbrokers lent out silly amounts of money. This time, it's bubble upon bubble and no savings to fall back on.

 

So for now, it looks like there might be an Obama rally, but those pesky Israelis are making life difficult in the Gaza strip. The timing may be perfect. Elections in Israel are up in the next few months.

 

Either way, its good for gold.

 

I posted a link earlier to Weiss's view as a video. Here's the view in writing.

 

http://www.moneyandmarkets.com/gala-issue-...ifetime-3-28912

 

On the issue of LIQUIDATION:

 

I like this guy:

 

http://www.321gold.com/editorials/willie/willie122608.html

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USMC-Retired

I really think the world is adjusting to the current value of currency based on the monies that were hedged, borrowed, loaned. So this will drag on for a while. I do not believe we are near the bottom.

 

The only example I have is the cost of a Big Mac. When I got here in May 2007 it was 99 pesos for a meal. Today that same meal is 123 pesos. That is a 24% increase in 18 months. So imported goods to all countries are rising. (there is a big mac index though not used for inflation). Though my dollar is stronger today so the cost to me remained the same.

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