Still no deflation: Disinflation then lots of inflation

[friendly_jacek]

Re: Still no deflation: Disinflation then lots of inflation

This is one of the idiosyncrasies of Itulip. Some posters are browbeat for using the term deflation, yet EJ or Fred show plenty of evidence of deflation, especially in the context of Ka-Poom.

[GRG55]

Re: Still no deflation: Disinflation then lots of inflation

Will somebody tell me what I'm missing here? :confused:

You appear to be missing the fact that one chart shows 200 years of broad trend history, and the other chart shows "a brief history of time", namely the period from 2000 where the current FIRE economy [version 2.0] has entered its death throes and month-to-month CPI [as measured by the notoriously reliable and honest BLS remember] swings back and forth as the Fed and the Administration desperately try to keep the game going.

You think Greenspan timed his retirement so he could spend more time with his family? Or write his book? :rolleyes:

[Guest]

Re: Still no deflation: Disinflation then lots of inflation

Moved to another thread.

[*T*]

Re: Still no deflation: Disinflation then lots of inflation

First bit of market timing Greenspan did right, in that case.

[FRED]

Re: Still no deflation: Disinflation then lots of inflation

Will somebody tell me what I'm missing here? :confused:

If we zoom in on various periods show on the chart you will see what appears to be entry into a deflationary period, for example in 2001. AS the article points out, dollar depreciation is the "foolproof way" out of deflation, and as the zero bound tends to cause a reversal of capital inflows to the US, the US economy has a built-in anti-deflation mechanism: foreign debt.

[raja]

Re: Still no deflation: Disinflation then lots of inflation

Supply destruction, raja. Supply destruction...:eek:

Input costs are influencing everyone, everywhere. It's more acute in the US$ zone, but it's hitting China and others too.

I have very little experience in economics, so could you elaborate on this for me?

Say you are growing cotton, for example.
The clothes manufacturer is ordering less cotton because consumers are buying fewer clothes. You cut back on your production of cotton, but you're also cutting back on your input costs, because you need less labor, fuel, fertilizer to produce a smaller amount of cotton. Plus, basic material inputs, such as fuel and fertilizer are dropping in cost, so you can actually sell your cotton for less than before, which is a perfect match for consumers who have less money.

I agree, supply would be destroyed, because there is less demand . . . but wouldn't the reduced supply be matched to the now reduced demand level. So I don't understand how supply destruction would increase prices?

[Chief Tomahawk]

Re: Still no deflation: Disinflation then lots of inflation

Thanks, Fred.

I have a subscription to Agora Financial's "Outstanding Investments", edited by Byron King. Over the past few weeks he has sent out several e-mails touting "6 Screaming Buys" with most being precious metal miners. I finally gave in and bought. Ouch.

[mikedev10]

Re: Still no deflation: Disinflation then lots of inflation

Thanks, Fred.

I have a subscription to Agora Financial's "Outstanding Investments", edited by Byron King. Over the past few weeks he has sent out several e-mails touting "6 Screaming Buys" with most being precious metal miners. I finally gave in and bought. Ouch.

right there with ya brother.

[we_are_toast]

Re: Still no deflation: Disinflation then lots of inflation

Thanks, Fred.

I have a subscription to Agora Financial's "Outstanding Investments", edited by Byron King. Over the past few weeks he has sent out several e-mails touting "6 Screaming Buys" with most being precious metal miners. I finally gave in and bought. Ouch.

I've been hurt by the miners also, but with oil dropping and gold prices high, the profit margin on gold production has to be rising. I expect the minors to be able to report an increase in profits which will be one of the few sectors in the market to do so. Hopefully this will cause a rush of money to the sector. This will be the opportunity to bail. In the long run I think Fred is right.

[phirang]

Re: Still no deflation: Disinflation then lots of inflation

If I buy gold stocks, I have two types: barrick, which tracks the index(sorta), and really, really high-grade juniors with tons of cash and a BFS.

I've been getting burned hard, too, and having dealt with the mgmt, for the most part, they ARE IDIOTS.

I'm frankly done with equities: I'm going to undust my engineering books and crank up matlab.

[akrowne]

Re: Still no deflation: Disinflation then lots of inflation

I don't get where the supposed "genius" on behalf of Bernanke is in this (not that Eric was claiming it).

Isn't Bernanke basically just saying he wants to create a "dollar carry trade"? If so, has he been paying attention to Japan at all the last 15 years?

While such a operation might indeed lower the exchange-rate value of the currency, it doesn't do much for domestic liquidity, as the results have shown.

It helps exporters, but more than compensates by starving the financial economy of capital. That's why Japan has never emerged from its malaise -- what kind of idiot would invest there, with no interest-rate winds at their back, and little chance of capital appreciation?

In the case of the US, rampant fraud and market bubble collapse will likely make the situation even worse if a cheaper dollar is forcibly induced. The situation isn't neutral; everyone "in" is looking for a way out, and no one else wants in.

There seems to be a lack of a full understanding of international capital flows in the academic literature by Bernanke et al.

Further, if a cheaper dollar is induced, arguably it will hurt the overall economy disproportionately, given how much consumer spending is dependent on cheap imports.

There is not a lot of evidence that Bernanke appreciates that fact.

[godraz]

Re: Still no deflation: Disinflation then lots of inflation

I don't get where the supposed "genius" on behalf of Bernanke is in this (not that Eric was claiming it).

snip

There is not a lot of evidence that Bernanke appreciates that fact.

It appears that Bernanke and all the other highly educated brainy folks trying to manage this mess are getting a real world lesson in how well their economic response theories are holding up in the real world.

It's hard enough managing a household economy, never mind one that spans the globe and consists of a few billion households who have begun to sense that the geniuses don't know what they are doing! :eek:

[ocelotl]

Re: Still no deflation: Disinflation then lots of inflation

Cutting prices to burn off inventory is certainly deflationary. Across the entire retail sector you will see it happen as the recession deepens. The question is, what is the new equilibrium price that your grocer pays for goods and can charge for it? Clearly he cannot stay in business for long if the input costs for his goods stay higher than what he can charge his customers. Input costs must fall as well to match the new discounted sale prices that are meeting demand or he will not be able to restock the next cycle of inventory and sell it at a profit.

Uh, oh. Not looking so good. Hope he's got a lot of cash on hand to float expenses. Better not be counting on the credit line.

What happens if half of the grocers in your area wind up going out of business? Then the ones that survive get to charge what they need to in order to stay in business. That may be more than they charge today. As a result your grocer's customers' buying behavior will change. They will buy less and they will substitute lower quality products.

That's how it is in countries where the standard of living has declined because the nation had lost purchasing power.

Been there, seen that, got the T-shirt.

This is working the way it did during the rampant inflation period here in Mexico. As posted here, the main problem is not the lack of inventory, is inventory that doesn't sell at current prices. It is part of a process where stores have to fulfill obligations, and since creditors don't use to accept payments in species, the stores have to liquidate inventories to cover them, or to avoid them getting rotten.

People on similar process tend to form a network where they constantly check prices of groceries, so to share best prices among the neighborhood. That's the way the INCO (Instituto Nacional del Consumidor), first and then the PROFECO (Procuradirķa Federal del Consumidor) were born.

We will have to see how this process evolves, and how it will be handled.

[Slimprofits]

Re: Still no deflation: Disinflation then lots of inflation

FRED said: Cutting prices to burn off inventory is certainly deflationary. Across the entire retail sector you will see it happen as the recession deepens.

Prices in the area food markets have continued to rise and I haven't been shopping for crap lately, but did find this in the WSJ:

Big Discounts Fail to Lure Shoppers

AnnTaylor Stores Corp. began touting an "unprecedented" sale with discounts of up to 60%, which a spokeswoman attributed to this year's "significantly different retail environment."

Gap Inc.'s namesake chain and its Banana Republic stores advertised discounts of up to 40%. A spokeswoman called the markdowns "incremental promotions versus last year."

By the end of the month, some retailers resorted to citing the crisis directly. Posters at Steven Madden Ltd. footwear stores, for example, depicted a declining stock chart and implored shoppers to "Sell Stocks, Buy Shoes." To sweeten the offer, the company knocked 20% off all products. A spokeswoman declined to comment.

Restoration Hardware Inc., meanwhile, sent out a blast email on Thursday saying it "unanimously approves bailout bill" and offering $100 off purchases of $400 or more at the home furnishings chain.
Wal-Mart is already cutting prices for Christmas, saying last week it had cut prices to $10 on 10 popular toys.

Target Corp., Minneapolis, also is emphasizing value more than in the past. "Since 1994, we've had the brand promise 'Expect more. Pay less,"' said a spokeswoman. "Now we are focusing more on the 'Pay less' side of that promise."

Prices may have to go even lower to get consumers interested again. At Costco, where sales of non-discretionary items such as food and gasoline have increased and consumers have cut back on discretionary purchases of furniture, apparel and electronics, Chief Financial Officer Richard A. Galanti said last week, "If [a purchase] can be put off, it will be put off."

[phirang]

Re: Still no deflation: Disinflation then lots of inflation

No one will buy anything until savings are worthless or there's a new bubble to hide in.