Still no deflation: Disinflation then lots of inflation

[Starving Steve]

Re: Still no deflation: Disinflation then lots of inflation

The fact that baby boomers now desperately need to save for retirement means one thing: less consumption. The "go-go" economy of the boom years is over.

The idiots running the central banks will have fits and print like crazy, but the banks won't lend. Banks will hoard money.... And why should banks lend when the risks of lending in a recession are great and the rewards for lending are near zero?

Would you lend $100,000 overnight to any business for $3 or $4 interest? Even if you could collect fees for the loan, would you lend? And if you take collateral for lending, as banks do, what is illiquid collateral worth now when everything is so uncertain?

This all means that the deflation feeds upon itself, no matter what the central banks do. Only if the dollar is sharply de-valued, do we get out of this deflation-spiral. But that would mean hyper-inflation and a complete collapse, not just in the U.S. but everywhere in the world. Everyone would flee from the dollar and probably from all world paper money, all paper assets, and nearly everything.

[metalman]

Re: Still no deflation: Disinflation then lots of inflation

Only if the dollar is sharply de-valued, do we get out of this deflation-spiral. But that would mean hyper-inflation and a complete collapse, not just in the U.S. but everywhere in the world. Everyone would flee from the dollar and probably from all world paper money, all paper assets, and nearly everything.

nah. the dollar dies a slow death ala the pound sterling, in steps. the usa grows poorer and poorer over decades. imports become more and more expensive. the two car family becomes the one car family. eating out is a treat. we become like the brits before they found oil in the north sea, except without the imf to bail it out after it hits bottom... we pine for the old days, glorify our 'culture' and so on. get ready of a decade of sappy, sentimental movies about the america's past glory. a legacy of literacy led the brits to invent punk rock. americans invented hip hop.

except there is no usa 'north sea oil... on and on it goes. the us economy shrinks and shrinks and shrinks. chinese water torture... so to speak. a degenerating empire like the brit's but without the class.

[Guest]

Re: Still no deflation: Disinflation then lots of inflation

You sound like you've been reading Kunstler. Good writer BTW. I think it was unfair to lump him together with Mishmash and Ackermash. "Poorer and poorer, and poorer and poorer ...

nah. the dollar dies a slow death ala the pound sterling, in steps. the usa grows poorer and poorer over decades. imports become more and more expensive. the two car family becomes the one car family. eating out is a treat. we become like the brits before they found oil in the north sea, except without the imf to bail it out after it hits bottom... we pine for the old days, glorify our 'culture' and so on. get ready of a decade of sappy, sentimental movies about the america's past glory. a legacy of literacy led the brits to invent punk rock. americans invented hip hop.

except there is no usa 'north sea oil... on and on it goes. the us economy shrinks and shrinks and shrinks. chinese water torture... so to speak. a degenerating empire like the brit's but without the class.

[Jim Nickerson]

Re: Still no deflation: Disinflation then lots of inflation

From a Jeremy Grantham interview in Barron's 10/11/2008

Barron's: With the Fed and other central banks lowering rates last week, are you worried about inflation?

Grantham: My view is, "Forget inflation, guys." This is serious, the real McCoy, and you don't have to worry about little things like inflation. Global growth will slow down, commodities will be weaker for a while, and inflation is a thing of the past. Now we are talking about getting the financial machinery to work and just keeping [gross domestic product] grinding along.

And for just a bit of humility from what I think is a smarter than average guy.

Barron's: Where do you see all of this going?

Grantham: I want to emphasize how little I understand all of the intricate workings of the global financial system. I hope that someone else gets it, because I don't. And I have no idea, really, how this will work out. I certainly wish it hadn't happened. It is just so intricate that all I can conclude, by instinct and by reading the history books, is that it will be longer, harder and more complicated than we expect.

[GRG55]

Re: Still no deflation: Disinflation then lots of inflation

nah. the dollar dies a slow death ala the pound sterling, in steps. the usa grows poorer and poorer over decades. imports become more and more expensive. the two car family becomes the one car family. eating out is a treat. we become like the brits before they found oil in the north sea, except without the imf to bail it out after it hits bottom... we pine for the old days, glorify our 'culture' and so on. get ready of a decade of sappy, sentimental movies about the america's past glory. a legacy of literacy led the brits to invent punk rock. americans invented hip hop...

According to the cable service I had in my flat in London I had access to about 100 channels. On any given night at least 50 of them seemed to be broadcasting various documentaries about the glorious events of WWII...the Battle of Britain, Bletchley Park, RAF Lancaster Squadron 617 [the Dam Busters] were particularly popular.

I used to be thankful I'm Canadian and can relate to British humour [Lukester will understand what I mean] as I switched to another channel.

P.S. It'll probably last more than a decade...

except there is no usa 'north sea oil... on and on it goes. the us economy shrinks and shrinks and shrinks. chinese water torture... so to speak. a degenerating empire like the brit's but without the class.

Maybe no North Sea oil, but what about that "wall of wind" that T. Boone keeps talking about on my PBS telly up here?

[raja]

Re: Still no deflation: Disinflation then lots of inflation

raja: What you describe is part of the "normal" situation. And another normal part is that over times of plenty basic commodity producers around the globe increase production and increase production and increase production, until the glut exceeds consumption by such a margin it takes years to work off the overcapacity [by a combination of bankrupcy and closure of the highest cost sources and the gradual expansion of economies and population to take up the slack over time].



However the difference this time is primarily threefold [this is a simplfied summary, but forgive me as it is late]:

• Supply response in this so-called commodity bubble has been anemic, compared to historical patterns, in many critical commodity sectors. This price cycle didn't last long enough to overcome the scepticism, through much of this cycle, of commodity companies and capital markets that the higher prices were sustainable - a deeply ingrained scepticism after a quarter century of brutal declines in those businesses. Further, most of the available cashflow and capital went to fund unprecedented early cycle M&A between the majors and intermediates. The cycle time to bring on substantive new, green-field production of most commodities is longer, much longer, than this price cycle allowed.
• Capital markets are exerting discipline over the high cost producers much, much faster than usual...the money [credit] is simply not available to keep low/zero/negative margin commodity sources in production. This is a break with past experience.
• Finally, resource extraction and commodity production is a very capital intensive activity. And when capital is not available it does not matter what the input costs and product prices are doing. Supply simply will not expand without capital. Lots of capital. To use your example, if you grow cotton, it matters not a whit that your input costs in US$ are declining. If you cannot secure sufficient credit at planting time to buy those inputs [seed, fertilizers, fuel and so forth] then you will grow less, or perhaps not at all. And we are in a capital markets/credit situation that will not self-correct, nor will it quickly respond to the increasingly desperate government interventions to correct it.

These are the reasons that this so-called commodity bubble collapse will not involve many years of working off huge quantities of uneconomic commodity production overcapacity.

Nor will supply increase quickly when the global economy inevitably recovers and begins to grow again. The unprecedented nationalizations now underway imply that, for the first time since FDR's New Deal, governments will have an enormous hand in capital allocation decisions in the next global economic recovery. And you can guess where they will want to direct most of the money. Your cotton growing farmer friend should do fine, since governments everywhere view agriculture subsidies as a national birthright.

Provided he can get the diesel to run his John Deere...

If I understand you correctly, your are saying there will be a shortage of supply, and consumer prices would be higher as a result. But as mcgurme points out, commodity costs are lower now. Are you suggesting this is only a short-term effect?

Seems like right now the cotton farmer has relatively cheap diesel to run his John Deere, so no need to raise prices. If he does, his jobless customers won't be able to afford new clothes and he'll go out of business. ;)

Deflation.

[GRG55]

Re: Still no deflation: Disinflation then lots of inflation

If I understand you correctly, your are saying there will be a shortage of supply, and consumer prices would be higher as a result. But as mcgurme points out, commodity costs are lower now. Are you suggesting this is only a short-term effect?

Seems like right now the cotton farmer has relatively cheap diesel to run his John Deere, so no need to raise prices. If he does, his jobless customers won't be able to afford new clothes and he'll go out of business. ;)

Deflation.

Well if you think he has relatively cheap diesel right now then you would have to come to the conclusion you have.

You would also have to believe that we've just had an "oil bubble" that burst, bringing oil all the way back down to...the same price it was one year ago, and a full 5 times what it was in the last recession [and one may wish to note the crude curve is back in contango]

Hope your cotton farmer friend feels equally fortunate about his fuel prices...

[raja]

Re: Still no deflation: Disinflation then lots of inflation

Well if you think he has relatively cheap diesel right now then you would have to come to the conclusion you have.

You would also have to believe that we've just had an "oil bubble" that burst, bringing oil all the way back down to...the same price it was one year ago, and a full 5 times what it was in the last recession [and one may wish to note the crude curve is back in contango]

Hope your cotton farmer friend feels equally fortunate about his fuel prices...

In this global recession/depression, there are two counter-balancing forces at work -- gov't printing money and demand destruction. The former is inflationary, and the latter is deflationary. How these forces will play out over time is hard to say.
However, it seems my call in a previous post of all commodities down has come to pass . . . .

My concern for the future is as mcgurme elucidated in a previous post:

- The US has accumulated mountains of "stuff". If we decide to go on a "stuff" diet, this may throttle back consumption more rapidly than producers can adjust. EJ has stated elsewhere (wish I had the link) that in today's markets, producers have a great deal of just in time capability that can be throttled back. That may be true in some sectors, such as computer production. But consider this - last time I visited my local campus surplus, there were hundreds of perfectly good, usable PC computers for sale, for $100 each. They had been traded out for new ones then surplused. How long could people get by not buying any new computers, just using old ones? A long, long time. The same is true with another thing near and dear to my heart, bicycles. I know of people who have as many as 20 bikes in their basement or garage. If things get tough, and all those people move to sell all those bikes, the industry will simply shut down, until the surpluses accumulated in the last 30 years work their way out of the system. Nearly every stuff-related industry in the US (and hence producers around the globe) faces a total shut-down of buying, if people loose confidence.

- To some extent, this is even true of food and oil (in the short term only, not long term - Lukester, I still believe in peak oil, don't worry). The US has an "epidemic of obesity". That would seem to indicate a lot of people could stand to eat less and walk or bike more. What if a lot of those people decide to start doing exactly that? Especially if they loose their jobs and can't afford to eat so much or drive everywhere anymore. Maybe global decoupling will take up the slack, but I doubt it, in the short term. All one has to do is look at the global "coupling" of the sliding markets to see that true decoupling has not yet happened. In any case, people still need to eat, but if everyone dramatically cuts back on consumption of calorie rich foods, this could have a substantial impact (albeit temporary). Same true for oil (again, temporarily).

So, my point is, if people truly loose confidence, and just halt all discretionary spending, this could accelerate into full blown deflation.

Ultimately, the printing presses will likely catch up. But in my view, the speed, length, and depth of the "Ka" we are in could each be much greater than anticipated. I think this would inflict a lot of pain on everyone if true. We may shift from a game of "wealth preservation" to a game of "self preservation".

[c1ue]

Re: Still no deflation: Disinflation then lots of inflation

Please define what 'cheap' is.

In my book, gasoline and diesel are still multiples of what they were 3 years ago.

[touchring]

Re: Still no deflation: Disinflation then lots of inflation

Please define what 'cheap' is.

In my book, gasoline and diesel are still multiples of what they were 3 years ago.

haha, SKF at $113 is beginning to look cheap. Any thoughts?

[c1ue]

Re: Still no deflation: Disinflation then lots of inflation

Having dumped last Thursday to avoid the weekend, I'm now waiting for all the banks to finish their quarterly reporting.

Interesting how JPM recorded a $500M profit from the WaMu acquisition - which was greater than their profit for the quarter.

[phirang]

Re: Still no deflation: Disinflation then lots of inflation

Having dumped last Thursday to avoid the weekend, I'm now waiting for all the banks to finish their quarterly reporting.

Interesting how JPM recorded a $500M profit from the WaMu acquisition - which was greater than their profit for the quarter.

Tovarish, Stavka declared there are no longer losses during 5-yr Banking Long March, only strategic withdrawls.

[GRG55]

Re: Still no deflation: Disinflation then lots of inflation

Still no deflation: Disinflation then lots of inflation

STILL NO DEFLATION.

Cut through all the bullshzt and your cost of living is still going UP. Ben must be tearing out what little hair he has left [on top]...

U.S. Consumer Prices Unchanged in September; Core Rate Up 0.1%

By Timothy R. Homan
Oct. 16 (Bloomberg) -- The cost of living in the U.S. was unchanged in September, restrained by plunging fuel costs and decreases in automobile prices and airline fares that signal the slowing economy is starting to cool inflation.

No change in prices, less than the 0.1 percent increase anticipated by the median estimate of economists surveyed, followed a 0.1 percent drop the prior month, the Labor Department said today in Washington. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast...

...Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August. The core rate increased 2.5 percent from September 2007, the same as the year-over-year increase in the prior month...

[GRG55]

Re: Still no deflation: Disinflation then lots of inflation

...Cut through all the bullshzt and your cost of living is still going UP...

Except if you plan to buy another flat panel TV this holiday season...

Flat-panel TV prices set to dive, analysts say

By PETER SVENSSON , AP Technology Writer, Technology / Business

(AP) -- A combination of weak consumer spending and a peak in manufacturing capacity will push prices for flat-panel TVs down to unprecedented lows this holiday season, according to analysts.

David Barnes, analyst at NPD Group's DisplaySearch unit, said prices look set to decrease rapidly starting on "Black Friday," the day after Thanksgiving, and lasting through next year.


It's even possible that 32-inch LCD TV sets, which now usually cost $600 to $700, will go as low as $350 in stores. That's a significant level: It's close to the long-run average price for a TV in the U.S., Barnes said Tuesday.

He believes these smaller sets will be the big sellers this year, as consumers, and possibly also credit-card companies that had fueled big-ticket spending, tighten their belts.

"We're about at the point where the 32-inch set will be the commodity," Barnes said Tuesday.

Larger 40- or 42-inch sets are already dipping below the $1,000 level, another important psychological barrier.

[c1ue]

Re: Still no deflation: Disinflation then lots of inflation

Except the LCD and plasma TVs use more electricity than the old sets.

How's that for a hidden cost of ownership :rolleyes:

Its like getting the monster SUV when you reserved the mid-size rental car.