Deflation Not Done -- Then ???

[metalman]

Re: Deflation Not Done -- Then ???

How very Al Gore-ish to declare a debate over. ;)

mccain will win the election in 2008. i'm certain of it.

and this...



will turn into this...



and this...



will turn into this...

[GRG55]

Re: Deflation Not Done -- Then ???

Agreed. It should be made a sticky and required reading before posting.

I can't read. What should I do?

[Mashuri]

Re: Deflation Not Done -- Then ???

mccain will win the election in 2008. i'm certain of it.

and this...



will turn into this...



and this...



will turn into this...

And CPI measures everything I ever spend my money on. Oh, wait...

[touchring]

Re: Deflation Not Done -- Then ???

4 years versus 4 mths. Back then in 1930, there wasn't a China that could continue buying up raw materials to keep the CPI high.

[metalman]

Re: Deflation Not Done -- Then ???

4 years versus 4 mths. Back then in 1930, there wasn't a China that could continue buying up raw materials to keep the CPI high.

finster, will you pls have a word with our friend here. he seems to be stuck on the notion that the quantity of commodities matters more than the quantity of irredeemable dollars.

[metalman]

Re: Deflation Not Done -- Then ???

And CPI measures everything I ever spend my money on. Oh, wait...

invasion of the mishtards.

[touchring]

Re: Deflation Not Done -- Then ???

finster, will you pls have a word with our friend here. he seems to be stuck on the notion that the quantity of commodities matters more than the quantity of irredeemable dollars.

I understand that inflation can occur without demand, but if the quantity of irredeemable dollar does explode, the commodity exchanges will use the Euro instead of the dollar. By then, the dollar price of commodities wouldn't matter.

My business made the switch to a Euro based price list earlier this year. As I see it only a matter of time before almost everyone outside the USA will be using the Euro.

Switching currency can be quite a daunting exercise for businesses, and once the switch is done, it is very unlikely that they will revert back to using the dollar for International sales.

[Diarmuid]

Re: Deflation Not Done -- Then ???

finster, will you pls have a word with our friend here. he seems to be stuck on the notion that the quantity of commodities matters more than the quantity of irredeemable dollars.

Think you might enjoy this MM - this is known as a u-turn I think

From Deflation to Inflation

by Martin D. Weiss, Ph.D. 09-21-09
Step by step, with little fanfare and great complacency, we are witnessing a fundamental, global shift that’s rapidly transforming the investment scene:
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1
Never-Ending, Out-of-Control
U.S. Federal Deficits
As Larry Edelson explained here one week ago:

• Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
• The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
• Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
• The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
• Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.

Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2
New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:

For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.

This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3
U.S. Household Wealth
Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of

• $1.1 trillion common and preferred stocks
• $494 billion in mutual funds
• $157 billion in real estate

These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4
Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
Now, however, as you can see in this chart provided by www.Shadowstats.com, the outlook has changed dramatically:
Since mid-2008, money supply has exploded beyond $1.65 trillion, with more rapid growth on the way.
Is Deflation Dead?
No. It will return.
But at this juncture, inflation is the primary concern, with far-reaching consequences on how you invest, when and where.
In the days ahead, my team and I will give you step-by-step instructions on how to protect yourself — and profit.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
Stand by for more details in upcoming emails from key members of our team, including myself, Larry Edelson and Mike Larson.
Good luck and God bless!
Martin

[goadam1]

Re: Deflation Not Done -- Then ???

finster, will you pls have a word with our friend here. he seems to be stuck on the notion that the quantity of commodities matters more than the quantity of irredeemable dollars.

How many of these?


For this?

[goadam1]

Re: Deflation Not Done -- Then ???

Fred, I'd appreciate some comments on the no deflation spiral view in lieu of the S&P 600 call.

I've got it that there will be no long-term spiral ala the 30s.

But if there is a S&P crash (and a China crash possibly as well!) isn't it likely there be a short-term plunge in commodities again?

I've got a fair amount of commodities from the last plunge, but didn't *load* because I never saw a true capitulation -- which is what I'm thinking the 600 plunge would likely trigger.

Are you saying commodities are likely to stay above the fray?

Why can't answer this question if a way I understand? If no deflation spiral, then why s&p 600. Can the s&p get to 600 without oil falling to $30 or so?

[touchring]

Re: Deflation Not Done -- Then ???

Why can't answer this question if a way I understand? If no deflation spiral, then why s&p 600. Can the s&p get to 600 without oil falling to $30 or so?

Spiral is a continuous declining scenario. We don't have a deflationary spiral.

[goadam1]

Re: Deflation Not Done -- Then ???

Spiral is a continuous declining scenario. We don't have a deflationary spiral.

Thanks but I still don't get it. What are you saying? No deflations spiral, check.

How do assets sink under reflation. Dollars down = commodities up. Dollars down = stocks down? If reflation fails and stocks go down, then how do commodities stay up. I get gold catching a slow and steady ride up under a dollar drop but if xom goes up then the market is going up too.

[FRED]

Re: Deflation Not Done -- Then ???

Why can't answer this question if a way I understand? If no deflation spiral, then why s&p 600. Can the s&p get to 600 without oil falling to $30 or so?

If a U.S. sovereign debt and currency crisis--aka Ka-Poom--occurs by the end of 2009, a version of a sudden stop as in Argentina in 2001, then stocks fall:

The dollar falls.

Oil and gold priced in dollars rises.

Bonds lose value.

Argentine bond traded at yields below global yields for years before the crisis.

Note that immediately after the currency and debt crisis in Argentina in 2001, stocks "rallied" nearly 100%, from 250 to 500 as domestic holders of peso denominated assets who failed to get their money out of the country and into U.S. and European banks tried to preserve the purchasing power of their remaining wealth. However, the 100% gain in nominal stock prices did not offset the cumulative 200% deflation in their purchasing power.

Then, during the inflationary crisis that followed in 2002 and 2003, stocks declined then began a choppy 600%. Why? At first the 2002 - 2003 inflation increased their value nominally. The inflation wiped out most of the foreign and domestic debt. Argentina started with a clean slate in 2004. Bond yields fell to normal levels and stocks increased in both real and nominal terms.

The U.S. could use a Poom to wipe out its debt, and the markets may hand us one as soon as before the end of the year. After the event, we'll need to get the heck out of commodities and back into stocks.

[ST]

Re: Deflation Not Done -- Then ???

and the markets may hand us one as soon as before the end of the year. After the event, we'll need to get the heck out of commodities and back into stocks.

Am I the only one who thinks it's insane to hold 70% in US treasury bills if you think, even remotely, such an event is likely anytime within a few years, let alone a few months?

Why would you not rather hold 10-30% gold and the rest either in a basket of other hard currencies or a basket of other hard currency denominated bonds?

[we_are_toast]

Re: Deflation Not Done -- Then ???

Am I the only one who thinks it's insane to hold 70% in US treasury bills if you think, even remotely, such an event is likely anytime within a few years, let alone a few months?

Why would you not rather hold 10-30% gold and the rest either in a basket of other hard currencies or a basket of other hard currency denominated bonds?

Good points!

Is FRED speculating, or is this a hint at an expectation?