The truth about deflation - Eric Janszen

[Down Under]

Re: The truth about deflation

itulip has a serious pearls before swine problem. there are so many sites full of ******* idiots pretending to know anything. the real solution is for itulip to go subscription only and charge $1000 a year. then it won't have to spend time explaining how to tell one of these...

Spot on...

[Down Under]

Re: The truth about deflation

Yes, look up the definition of deflation, if you don't believe.

F_J, a broken record get a little monotonous after a while, don't you think?

[xela]

Re: The truth about deflation

I was under the (probably naive) impression that it was neither November nor January, but October that the Fed opened up the money spigots. Witness the reversing back to near sanity of LIBOR, the recent lowerings of the Fed Funds rates, the generous dollar swaps with other Central Banks, the willingness to finance commercial debt paper, and lordie knows what else in the way of "free" money.

Prior to October, they seemed to want to carefully funnel (sterilize) their free money to the Chosen Few bank cartel masters, keeping it out of the hands of us common folk.

However I figure it must take a few months for the newly printed money to work its way through the financial plumbing to where it has a broad affect on dollar denominated prices.

Sure, but all the new credit may not trickle down because too much debt was and is the problem to begin with..
So how to reinflate? This is the real question right now. What if even 0% and principial reductions wouldn't overall stop the deflation (used in the sense that you can call this period disinflation after the fact, but for the time being its deflation), simply because so much bad debt is around and unemployment would still rise?
Another round of tax-rebates in the form of cheques to the people, in time for Christmas or that sucker may go down, that is my fear.

[labasta]

Re: The truth about deflation

We have made the point for the past few years that when US recession came, the next impact on China's exports will be much less significant than is commonly assumed. China trades far more within Asia than it does with the US and Europe combined. In 2006 US exports to the US was 31% of total, now it is even less, closer to 25%. If we cut our imports from China by 20%, that will only cause China's total exports to fall by only 5%. They may be able to make up the difference via increased exports within Asia and by boosting domestic consumption.

Thanks Fred,

I wonder if anyone is relatively immune though due to the interconnectivety of all markets.

I see China exports about the same to Europe and then double that to the rest of Asia. Who do these blocks sell to? How are their economies doing? Surely if one economic block is reduced, they all get reduced.

This is globalisation after all, isn't it? How does the lack of orders for Volvo trucks (50,000 to 155 in the third quarter from 2007 to 2008) affect the Swedish economy? How does it effect commodity prices and the commodity based countries? The knock on effects must be felt around the globe like dropping a stone in a pond and watching the diluted ripples disperse out.

That stone is the Disneyland money of the United States of America. And it seems that stone could be a boulder. We are all waiting to see how big the stone is relative to the pond.

It could destroy the world.

[ThePythonicCow]

Re: The truth about deflation

It could destroy the world.

Well ... I suspect that planet Earth, and even most life thereon, will survive ;).

I suspect that you're right in doubting that the recent Chinese boom will continue uninterrupted. Though the long term trend for China may remain upward, it can't avoid this world wide correction.

Whenever something collapses dramatically, it tends to collapse to whatever was the "solid ground" below it. The question, sometimes difficult to know ahead of time, is what's solid.

In any event, I'm convinced that world wide communications and computers are here to stay, which lays in place a fabric of connectivity and information processing that will continue to be enjoyed by the majority of humans, so long as anything resembling our human civilization survives.

Those who are financially and physically healthy, and willing to adapt their living style to what they can afford, will do fine, I trust.

Regretably there are far too many who could be in serious trouble, which could make life even more challenging for all of us.

Martin D. Weiss has a rather pessimistic view of what lies ahead in this great housing collapse, over at http://www.marketoracle.co.uk/Article7126.html . He anticipates that the current bubble collapse will be followed by a serious recession, to be followed in turn by a serious depression, with housing prices in some areas cut in half, then in half again, then in half again. I can readily believe that housing price forecast, having recently priced a modest 3 bed 2 bath house here in North Texas for $115K that was a little nicer, newer and bigger than one I sold last year in California, for something of a loss off its peak appraisal of $800K. If such a house, anywhere in the United States, cost about $100K in current 2008 dollars, that would be square reasonably with the cost to build them, in my view. Such pricing will absolutely devestate the neighborhood of Silicon Valley (Northern California) in which I lived for twenty years. The seaside resort of Monterey, south of Silicon Valley, has already seen its home prices fall over 60% in the last year.

Such economic collapse risks leading to significant social unrest, rendering some areas unsafe to live in.

[algerwetmore]

Re: The truth about deflation

Can there be that much housing deflation when the government printing presses are operating 24/7? People will spend some of their money on something tangible.

[jk]

Re: The truth about deflation

I can readily believe that housing price forecast, having recently priced a modest 3 bed 2 bath house here in North Texas for $115K that was a little nicer, newer and bigger than one I sold last year in California, for something of a loss off its peak appraisal of $800K. If such a house, anywhere in the United States, cost about $100K in current 2008 dollars, that would be square reasonably with the cost to build them, in my view. Such pricing will absolutely devestate the neighborhood of Silicon Valley (Northern California) in which I lived for twenty years. The seaside resort of Monterey, south of Silicon Valley, has already seen its home prices fall over 60% in the last year.

houses will always be cheaper in north texas, where cities have room to sprawl in all directions, than in silicon valley- with its difficult commutes and special employment opportunities.

[Charles Mackay]

Re: The truth about deflation

This from JSMineset today

Jim,

Last Thursday afternoon I dropped into the local Suzuki automobile dealer in order to have a look at the new SX4 AWD mini crossover. The sales manager and I got chatting about the economy and as it turns out, he was quite knowledgeable on the subjects that we all read regularly on JSMineset.com. This gent was involved in real estate investing on the side; specifically going to bank auctions, the ones where the bank is doing an absolute auction of properties they have already taken under a prior foreclosure.


He told me that one should not listen to any of the ‘reports’ of housing price declines, because they do not honestly reflect what is going on out there for the educated buyers. He told me that he was at an auction last week of several fairly new 3 bedroom homes on 4 acres across the street from a local lake here in New Hampshire with water rights and they were selling for $35K each at auction. I asked him how much these houses had originally sold for and he said $300K a few years ago!! I asked how many he picked up… he said none! I asked why at 11 cents on the dollar did he not buy anything? He told me that he is watching the stress in the markets closely and he feels they still have much further to go on the downside. His high bid was $25K and that’s all he is willing to pay.


He then told me of a very nicely renovated old farmhouse with attached large barn on an in town city lot of about ½ acre up near the lakes region in NH that was quite valuable that sold for $65K at bank auction a week or so ago. He said the inventories are full of this stuff and it’s going to get much worse. WOW! And none of this is being broadcast anywhere! He explained that he is on a series of auction listing sites which supply him the [real] data and offerings. It’s getting very ugly out there if this is all true information.


CIGA Bruce

[c1ue]

Re: The truth about deflation

houses will always be cheaper in north texas, where cities have room to sprawl in all directions, than in silicon valley- with its difficult commutes and special employment opportunities.

Not so clear how well the special employment opportunities will hold up.

The picks and shovels sellers to the entire semiconductor industry - the equipment manufacturers - are having an average of 15% layoffs.

Software and services are going to be 20%+.

Internet also seeing layoffs.

And this is only the first round.

I suspect history will show that the semi + internet boom was also highly dependent on cheap (or free) money.

[ThePythonicCow]

Re: The truth about deflation

Software and services are going to be 20%+..

However software is becoming increasingly susceptible to global wage pressures.

One of the reasons I got out of the computer programming business (besides just wanting to try something different) after 30 good years was I noticed people in far away places doing just as good work (maybe better) as myself, for one-fifth the pay. I figured that could not last.

The computer company I used to work for is moving more and more of its engineering out of Silicon Valley, to other locations that cost less.

[labasta]

Re: The truth about deflation

Martin D. Weiss has a rather pessimistic view of what lies ahead in this great housing collapse, over at http://www.marketoracle.co.uk/Article7126.html . He anticipates that the current bubble collapse will be followed by a serious recession, to be followed in turn by a serious depression, with housing prices in some areas cut in half, then in half again, then in half again. I can readily believe that housing price forecast, having recently priced a modest 3 bed 2 bath house here in North Texas for $115K that was a little nicer, newer and bigger than one I sold last year in California, for something of a loss off its peak appraisal of $800K. If such a house, anywhere in the United States, cost about $100K in current 2008 dollars, that would be square reasonably with the cost to build them, in my view. Such pricing will absolutely devestate the neighborhood of Silicon Valley (Northern California) in which I lived for twenty years. The seaside resort of Monterey, south of Silicon Valley, has already seen its home prices fall over 60% in the last year.

Such economic collapse risks leading to significant social unrest, rendering some areas unsafe to live in.

Shit!


I want to correct a previous number. It's 42k of orders for volvo trucks in the third quarter of 2007 compared to 155 in the third quarter of 2008.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7AhRhE4NJlM

It also affects suppliers of electronics and machine parts for the cars which will affect the machine manufacturers of the machines which make those parts etc. etc. Diluted ripples.

But 42k to 155!!! I mean, that's not a recession! That's a stop.

800k house to 115k!!! How much funny money is this? Where is this "solid" wall? Crap!

[ThePythonicCow]

Re: The truth about deflation

But 42k to 155!!! I mean, that's not a recession! That's a stop.

Yeah - that was a painful drop if ever I saw one.

What's worse, this wasn't a drop in Corvette's or yachts or Rolex watches. This was a drop in one of the more commonly used short haul delivery trucks, from what I can tell. That means a bunch of small and medium businesses are tightening their belts. But I guess we knew that.

Where is this "solid" wall?

Look down toward your feet. That solid wall is down that away, somewhere below your feet.

[c1ue]

Re: The truth about deflation

The computer company I used to work for is moving more and more of its engineering out of Silicon Valley, to other locations that cost less.

Yes, but since software is inherently extremely profitable - assuming any reasonable customer base - this outsourcing is simple and pure greed.

Its not like you need tens of thousand of workers to assemble a car, or that there are significant commodity inputs into software production.

It is pure greed.

[ThePythonicCow]

Re: The truth about deflation

Yes, but since software is inherently extremely profitable - assuming any reasonable customer base - this outsourcing is simple and pure greed.

That assumption is not always so. Some software markets are small. Only a very few software companies show the large earnings and profit margins that are the indicators of greed, successfully realized.

[lurker]

Re: The truth about deflation

That assumption is not always so. Some software markets are small. Only a very few software companies show the large earnings and profit margins that are the indicators of greed, successfully realized.

Agreed. The relatively low cost of entry (low capital cost) means that greedy software companies will have their lunch stolen by a leaner startup.

Taken to an extreme I've noticed that a lot of the best software you get is free. Filezilla FTP server, Mozilla, GNU. I run a windows machine with almost no MS applications now because the freeware is better.