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Core deflation in the US continues to gather pace

Discussion in 'Political Discussion' started by PatriotsReign, Nov 23, 2009.

  1. PatriotsReign

    PatriotsReign Rookie

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    I found this article very interesting. But deflation in the US pales in comparison to what's happening in Japan.

    "Core inflation for factory goods in the US fell to minus 0.6pc in October from a year earlier, edging the country closer towards Japanese-style deflation despite massive monetary stimulus.

    Janet Yellen, the head of the San Francisco Fed, said emergency measures had prevented the US economy from sliding into a “black hole of deflation”, insisting that it is still far too early to talk of tightening policy.

    A combination of “enormous slack in the economy” and fading fiscal support raised the risk that prices could fall below the Fed’s safe level. “It seems probable that core inflation will move even lower over the next few years,” she said."


    Mish's Global Economic Trend Analysis: Deflation Returns To Japan; Black Hole Madness In U.S.
    Last edited: Nov 23, 2009
  2. PatriotsReign

    PatriotsReign Rookie

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    I guess all the INFLATIONISTS out there have nothing to say....

    Just what I thought!
  3. maverick4

    maverick4 Banned

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    No need to self servingly bump your own thread, especially when you're going to disappear once inflation occurs.

    Over the summer, I already said we may see deflation for maybe half a year, but that hyper inflation is coming soon after.


    This isn't major news you're trying to thump your chest over.
  4. Real World

    Real World Moderator Staff Member

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    I'm not sure you can look at anything in the short term, or current, and forecast it as a long term trend. I feel that inflation is a potential problem, but this is territory, or an environment, we're simply not used to seeing. I'm not sure many people really know what to expect moving forward. I know I don't. What will happen if the commercial real estate market crashes as some expect it to? Where is the dollar going to be moving forward? Will fuel demand remain low, and what effect will the dollar have on it's cost? Then of course, there's that three letter word, J-O-B-S. We're in a bad spot, and the only thing I can say for certian, is that it's not a good one.
  5. maverick4

    maverick4 Banned

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    Just look at the interest rates.

    It is inevitable that they start to SPIKE big time, the Fed can't stop it, they've used all their tricks already.


    There is no way you can stop inflation from happening at this point. We have FLOODED the world with more money supply, when demand isn't even that good anymore.
  6. Real World

    Real World Moderator Staff Member

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    Interest rates do scare me mav.
  7. PatriotsReign

    PatriotsReign Rookie

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    I've never "thumped my chest" Mav. Anyone who does so is an arse. This article says deflation is here for the foreseeable future.

    Mav, just an FYI, but the REAL money supply has DECREASED significantly. Just because the fed pumps money into banks, does not imply an increase in money supply.

    I've explained this a few time, but I'll do so again. If the fed or the gov't prints money and gives it to companies just to write down bad loans or debt, the result is that the money disappears. If I give you money to write off 100 bad loans, all it does is balance your income statement. The net effect upon you personally is nothing.

    If you look at almost ALL the money the fed and our federal gov't has given away, it is only to replace lost revenue or negative balance sheets.

    Let's say the gov't decides to give everyone another stimulus check this spring. If no one spends a dime of it or if it's used to pay down debt, it has no effect upon the money supply.

    If it did affect the money supply, we'd have already seen a bump in consumer spending...and we really haven't. It's the old saying "people can't spend what they don't have". and right now, the average Joe has very little.
  8. PatriotsReign

    PatriotsReign Rookie

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    FYI Mav....The MONEY SUPPLY IS DEMAND
    Last edited: Nov 23, 2009
  9. maverick4

    maverick4 Banned

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    The rest of the world knows that you printed the money though, and that each dollar is worth less. It simply hasn't been reflected yet, but the overall value of each dollar is worth MUCH less than 2 years ago. Global demand for dollars is less too, not more or the same as you claim.
  10. PatriotsReign

    PatriotsReign Rookie

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    Yet, you did say "the money supply has increased"? The fact is, the money supply is DECREASING. Why? you may ask...I'll tell you why then. It's because CREDIT is disappearing. People are losing their credit cards left & right. Others (millions of them) are having their limits reduced AND their interest rates INCREASED. This all REDUCES the money supply and thus, demand for goods and services.

    Interest rates will not increase any time soon because there is little demand for credit. No one wants money they can't pay back and banks don't want to lend to people who aren't super-qualified.

    I just had the limits on 2 major credit cards cut in half. On top of that, they raised my interest rates to almost double what they were. I have no debt and I pay my balances in full. But the BIG thing I'm missing is "Assets"...and that is the key reason I'm going to buy a house very soon. With home values still declining, why would banks want to extend credit?

    Currencies increase and decrease in value regardless. As of today, Japan's currency should be worth the least because they've printed the most money as a percent of their GDP (according to your statement). If the US economy picks up before the rest of the world, our currency will increase in value regardless of how much money we've "printed".

    If US currency is so lowly valued, then we should all be paying more for goods and services...but that hasn't happened. Even goods from China have DECREASED in cost to US consumers...so how's that theory working now?
    Last edited: Nov 23, 2009
  11. alvinnf

    alvinnf Rookie

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    Your completely right. We saw some early signs of inflation last spring. It was then followed up by a summer of unusually low gas prices. We are right in the midst of deflation, this holiday season will give us some good indicators on whether money is moving around.
  12. Run DMC

    Run DMC Rookie

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    "I'm your huckleberry".
    The Fed has made it well known they will do all they can to stop deflation, I have no reason to doubt the bastards who got us into this mess.
    Last edited: Nov 23, 2009
  13. PatriotsReign

    PatriotsReign Rookie

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    "Mr Finn" here....:D

    You're right, the fed has made that known on several occasions. But let's not assume that their goal is to create "Hyper-inflation" either.

    People seem to think it's got to be either one or the other....and the fact is, we may even end up with stable pricing.

    I think what our gov't has stated is in regards to "the black hole" type deflation mentioned in the article. Runaway DEflation is as dangerous as hyper-INflation.
  14. ljuneau

    ljuneau Rookie

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    Great post, PR.

    Let me ask you a few questions.

    What about the $780 billion borrowed for stimulus. Does that increase the money supply, since it was not used to clean up balance sheets?

    Also, wasn't deflation of assets and commodity prices one of the factors that triggered the Great Depression (along with trade distruptions and drops in demand and credit)? From what you state, it appears we are headed down that same road again.
  15. PatriotsReign

    PatriotsReign Rookie

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    Yes, it is very similar...except this time we have federal deposit insurance. Also, during the depression, we saw the price of gold remain fairly stable which was the result of the fact the dollar was backed by gold. Also, there were more controls on gold back then.

    As for the stimulus money (or any gov't money), it will not affect the money supply if it just replaces lost money. In other words, if California has lost $40B in revenue over the last 2 years and they use their stimulus money in liue of revenue, then there is no affect upon the money supply.

    The money supply is like a balance sheet. First, we need to assess all the lost wealth that has ocurred over the past 2 years. Worldwide, over $60 trillion of personal wealth has vanished. That represents a HUGE decline in money supply. We should then evaluate the average debt of Americans. We now have millions of Americans who are burdened with debt they "thought" they could pay back with increases in home and 401k values. Debt decreases money supply.

    Then we have available credit which has been chopped to pieces with very little remaining for the average Joe. Decreases in credit decrease the money supply also.

    So a "stimulus" plan that slowly distributes $.75T is really only compensating for a fraction of lost wealth. That is why Americans are still NOT spending. Until we eliminate or greatly reduce our personal debt levels and begin to accrue real SAVINGS, we will not see an increase in money supply.
    Last edited: Nov 24, 2009
  16. PatriotsReign

    PatriotsReign Rookie

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    Bump....just to irritate Mav!;)
  17. ljuneau

    ljuneau Rookie

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    Thanks for the info. One more question: Since the dollar is not backed by gold, and the value of gold is rising, is our current situation worse than it was prior to the GD?
  18. maverick4

    maverick4 Banned

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    The value of gold is rising only because it is priced in dollars, and because each dollar is worth much less the more time goes by, and it is losing value at an accelerating rate.

    I don't think it's as bad as the depression yet, but when the collapse actually happens (it actually hasn't even happened yet believe it or not, but is coming), it will be much worse than the depression.
  19. PatriotsReign

    PatriotsReign Rookie

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    I guess Maverick thought you were asking him....:rolleyes:

    "The Collapse".... kinda like "lions & tigers & bears, OH MY!"

    Our current situation is much differenct than back in the GD. Back then, our economy dominated the world...not so today. We now have a very inter-dependent world economy and it's much more difficult to assess.

    One thing I can say with absolute assurance is that our economy will not collapse unless the entire world economy does...and if that were to happen, well, it won't matter much anyway.

    Also, we never should have acted like the growth that we saw in the early 2000's was a good thing, because it wasn't. Slow and steady growth is ALWAYS best. The Greenspan comment that has now become immortalized "Irrational exuberance"...can now be applied to the price of gold. Gold should not be as high as it is, but that's the nature of investments in 2009. Caution used to be THE catch-word when it came to investing....but sadly, it is rarely used today.

    So we have clearly witnessed a devaluation of the dollar to levels below it's true value and an increase in the value of gold far above where it should be. Why? Because speculation drives the value of both. If/when we see some permanent economic upswings, these values will reverse.

    "Is our current situation worse than it was prior to the GD?"

    I am not qualified to answer that question. People who make far more than I do probably can't answer your question. Our situation is much more complicated, that we do know.

    Personally, my strongest opinion on assessing our economy is that we MUST stop trying to FIX it. Let the laws of supply & demand along with some stronger regulations and more prudent banking guidelines take us to the next step.
  20. maverick4

    maverick4 Banned

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    Wrong on 3 different points.

    1. China has already rebounded, their dependency on US exports is only 1/5 of their economy.

    2. The price of gold is exactly where it should be. It reflects the entire world's uncertainty over using the dollar as reserve currency, when we keep trying to inflate our way out of debt.

    3. The dollar's true value is toilet paper. When it's true value becomes realized, the price of gold will continue to skyrocket, so long as it is priced in dollars.

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