A case for deflation (credit, debt, status, borrow)
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This article makes the case that deflation is the most likely outcome of the current economic situation.
The premise of this argument is that budget restraints within the government and the FED will, in the not to distant future, cause the credit driven speculation in equities, and commodities to reverse.
It also makes the case that due to only 4% of cash creation being physical and the rest simply a computer entry, that the levels of real cash and goods are limited, and demand for goods are diminishing.
Is this a plausible scenario, is deflation the most likely outcome of our economic situation?
It seems to me that deflation happens when demand for goods and services drops more rapidly than money supply (electronic or paper is all the same)... I don't see this happening as the recession has already dampened demand but governments have created money at record levels... long term the only possibility is inflation.
It seems to me that deflation happens when demand for goods and services drops more rapidly than money supply (electronic or paper is all the same)... I don't see this happening as the recession has already dampened demand but governments have created money at record levels... long term the only possibility is inflation.
Bottom line is that people cannot spend money they don't have.
The majority of the money they have spent up to now, has been borrowed.
The employment situation continues to deteriorate.
Housing prices and equity continues to deteriorate.
The stock market is by all measures overvalued.
Commodities are overvalued.
The outcome of the debt ceiling battle regardless of who prevails will contain less government spending.
The era of ultra low interest rates appears to be ending, if this is the case, people will have even less to spend on goods.
Add it up.
Well, increasing the DEBT ceiling means what exactly? doesn't it mean even more spending?? If we were going to spend LESS then the ceiling wouldn't need to be increased now would it...LOL! The theory is that we will spend more now and then cut back later...yeah sure, that has worked!!
Well, increasing the DEBT ceiling means what exactly? doesn't it mean even more spending?? If we were going to spend LESS then the ceiling wouldn't need to be increased now would it...LOL! The theory is that we will spend more now and then cut back later...yeah sure, that has worked!!
This article makes the case that deflation is the most likely outcome of the current economic situation.
The premise of this argument is that budget restraints within the government and the FED will, in the not to distant future, cause the credit driven speculation in equities, and commodities to reverse.
It also makes the case that due to only 4% of cash creation being physical and the rest simply a computer entry, that the levels of real cash and goods are limited, and demand for goods are diminishing.
Is this a plausible scenario, is deflation the most likely outcome of our economic situation?
Is this a plausible scenario, is deflation the most likely outcome of our economic situation?
In the short term, which would be over the next 11-12 years or so, then very Real Inflation on the order of 35%-45% (with Cost Inflation on top of that).
Quote:
Originally Posted by cdelena
It seems to me that deflation happens when demand for goods and services drops more rapidly than money supply (electronic or paper is all the same)... I don't see this happening as the recession has already dampened demand but governments have created money at record levels... long term the only possibility is inflation.
Deflation will happen once the recession starts and it deepens as the GDP drops. You can't reduce the money supply because the government is pumping money into the economy, um, I guess for social welfare programs and more Stimulosers.
The difference between now and the Great Depression is that at the end of WW II you had the Bretton Woods Agreement and the US Dollar becomes the de facto international reserve currency and the de facto currency of international trade.
Effectively the rest of the world sucked up all the money the government dumped into the economy between 1930 and 1946 and that prevented Real Inflation.
This depression will be more like the Civil War, where you had the [1st] Great Depression [of the 19th Century] coupled with a major drought in the Atlantic Coast States then Real Inflation as that ends and it's worsened by spending during the Civil War.
Quote:
Originally Posted by jimhcom
Bottom line is that people cannot spend money they don't have.
The majority of the money they have spent up to now, has been borrowed.
The employment situation continues to deteriorate.
Housing prices and equity continues to deteriorate.
The stock market is by all measures overvalued.
Commodities are overvalued.
The outcome of the debt ceiling battle regardless of who prevails will contain less government spending.
The era of ultra low interest rates appears to be ending, if this is the case, people will have even less to spend on goods.
Add it up.
Gotta wonder what will happen to sports teams, especially in the small and medium markets as their revenues decline drastically.
The US's problem will be with high or hyperinflation.
The thing to remember is that the one commodity that effects the US the most is oil. When the dollar crashes by, for example, 10% that means an automatic rise in oil prices worldwide by 10% as it is priced in US$. There is no way in hell that the major powers will allow their inflation rates to soar for the sole reason that the US can't get it's act together. This will result in {as already discussed last year by SA, China, Rus, Fra in a meeting that the US was deliberately not invited to} the price of oil being taken off a US$ base and moved over to a new currency based on a basket of major currencies. That means the US will now have to buy oil {and all it's imports} using a crashing dollar. That means it costs more dollars for the US to buy the same amount of all imported goods...............inflation 101. This will not only result in high inflation but also a very abrupt inflationary cycle.
The US has been spoiled rotten by not having it's currency downgraded already due to political influence. Being the world's reserve currency has given the US the ability to print $ like the bloody Weimer Republic over the last 5 years and not already had it's $ value decline even more than it already has. In other words, the US will lose it's status as the world's reserve currency it will have to live within the same monetary rules the rest of the planet has already had to do.
The reason Japan has, despite it's "lost 2 decades" has suffered from deflation is because despite all it's economic malaise since 1990 the Yen has remained extremely strong. The US will be in the exact opposite position with a plunging dollar and hence high inflation.
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