Anybody see global deflation looming here? How about an opinion from all you silent observers?

[*T*]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Both at the same time. Don't ask me what I mean, because I'm not sure.
How about posing this question as an accompanying poll, Lukester?

Edit: OK, inflation in things typically bought without credit, deflation in things bought with credit (by leveraged players).
The useful paradigm is deleveraging.

[xtronics]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

First, there is something worse than a 'great depression', it is called hyper-inflation. I can only guess - and as for timing - it all depends on what perturbs the system - no one can know. Also, the government is showing it isn't going to react constructively - but my best guess:

Inflationary depression - business (measured via something of real value, or in units of goods sold etc) will contract greatly, yet prices will still go up because so many dollars are printed. If it tips into a great depression, there could be periods of declining prices - but inflation for a very long time out.

It could also play out as a very long inflationary recession - a decade or so long?

I would put the probability of a hyper-inflation event in the next 35 years at 60% or so.

[Joy]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Too many people would like to make a distinction between the retail level shortage and lease rates. But I think they both stem from the same underlying causes. The physical demand is being met by paper shorts. At some point the Gold basis is going to explode and there will be a run on the Comex and other paper Gold purveyors.

[Jayhawk]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

I honestly don't know what to think anymore. This situation could be utterly different from everything experienced before. I was 100% on board with inflation early in the year and was about to pour into gold & silver. I got cold feet and then these things went way down.

Obviously stock market & real estate deflating. Credit deflating. No one want to loan or take on loans.

Things are looking so bizarre now, I don't know what to think...I'm about to go the gold route as insurance & because we appear on the brink of complete collapse.

I'm a complete novice in all of these things. My journey started back in January when a book called "America's Bubble Economy" caught my eye at the library. Before that, I was head down and buying the company line. (Buy and hold, real estate is a good investment, we have a strong economy and other lies)

Edit-
This is a local guy here is CO Springs...He presented at our local economics club a few weeks back. He's been predicting a global depression for several years. In his model, we get deflation for 2 years or so and then hyperinflation once the printing catches up to the massive bubbles exploding (stocks, bonds, real estate==30T worth over value)
http://www.austrianenginomics.com/id1.html

[BiscayneSunrise]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

As was noticed in a separate thread; when you have a AAA rated firm like GE and Goldman Sachs having to pay a 10% dividend to Berkshire something is going on.

10% interest for a AAA rated firm? Perhaps a harbinger of higher interest rates to come. Buffet, after all, is known for being well ahead of the curve.

[hoodoo]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Hi,

What I observe is a bewildering blend of the two.

On the deflation side:

Empty homes (bank owned, not listed) becoming less valauble every day.

Brand new multi million dollar homes that have been boarded up.

More and more people in our upper middle class community complaining outright that they are having cash problems.

Service businesses making hail mary attempts to keep the cash coming - profoundly low prices for things like carpet and house cleaning.

On the inflation side:

Crushing cost increases that push right into the lowest cost food stuffs - rice, beans, flour. It is hard to escape even when using the full court press on being frugal.

Gasoline costs that are still way above what they were just a couple of years back.

A used car market where small cars are retaining value far beyond anything that I've ever seen.

Grinding efforts to transfer costs to citizens outside of taxes - our schools have been gutted and the fundraising and pleas for donations have become a staple of school sponsored communication. This year is terrible.

Hoo

[c1ue]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

We're going to have deflation first as we approach the ZIRP mountains, then we're going to have inflation.

Outside of the US it will be primarily a disinflation though Europe could see deflation also.

High interest rates are coming - but with them (preceding) will be high inflation.

Unfortunately for commodities the next will likely be only a moderate rise as initially demand falloff cancels out early printing, but there is a real possibility of hyperinflation touching off in one or more nations at which point the moderate rise will become an asymptotic one.

Fasten your seatbelts!

[globaleconomicollaps]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

First question:

Why do you care what we think? I follow Itulip because I think the writers can research these things full time and are just plain smarter than I am.

Second Question:

Look at what EJ has written about this. The concept of Inflation is slippery. Computers are going down, health care is going up, wages are disconnected from anything. The only important thing going on right now is debt deflation. That doesn’t equal Inflation or Deflation. What are you trying to learn from the Inflation/Deflation question? Am I going to have a job? (Answer: No) are my stocks going to do well? (Answer: No). Are my Mom and Dad going to be eating cat food in retirement? ( Answer: Who knows)

Third Question:

What is with the gold thing? EJ says ignore gold, it is not subject to government sponsored bubbles. Gold went down for 20 years from 1980 to 2000. Inflation as measured by CPI averages 2-5%. Is this supposed to be an inflation hedge? Also I am (by Itulip standards) poor. I read gold bug web sites. They all say to take physical possession of the gold. I live in a rental. If I drill holes in the walls to put a safe in I lose my deposit. If I put it in a safe deposit box the government will take it. It looks to me like owning gold is only for those that already own their own home. And another thing, members of my family did buy gold. They put it in a safe in the house. The house was burgled and the crooks broke open the safe. The real costs of keeping and securing gold far exceed what you might make from appreciation ( if there is any)

What about silver? EJ says don’t bother. It will not go up even if there is inflation. 1000 oz bars weight 70LB each. If I bought 10 of them they would break the floor of my closet.

[a warren]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

[quote=Lukester;51720]C'mon all of you silent iTulip hordes! Your multitude is growing like King Kong. Speak up on this question. Lots of us would like to get a glimpse of where the majority view is.


Inflation on the street for all essential items. Items that require credit are falling in value, including all the consumer electronics that have been so overweight in CPI figures.

[photoncounter]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Think of it as a war between forces of deflation and forces of inflation. Most investors are trying to deleverage (reduce debt/risk), which causes deflation-like effects. But governments want to offset these effects by ADDING leverage (printing money or the like), because the majority of people don't want an economic depression.

On any given day, or month, either side might appear to be winning the war. But the safest bets are long-term ones, and it's a very safe bet that the money-printers will defeat the money-hoarders eventually (at least with respect to U.S. dollars). Very simply, it is in the interest of the large majority of Americans to reduce debt levels via inflation rather than via saving -- especially given that the U.S. as a whole owes money. And that large majority ultimately determines monetary policy (money-printing), by whom they elect.

In other words, ignore the short-term fluctuations

I agree. I am sure most of you must have read EJ's post about how the ka-poom theory may unfold. I will post it here again.

1) Build-up: The antecedents for crisis may be too-much short term foreign debt relative to GDP, too little foreign exchange reserves, or some other imbalance or vulnerability. The economy turns down and things start to go badly, first as a series of small crisis but escalating over time.

2) Erosion: Confidence in the economy and financial markets gradually erodes over a period of a years or years. There are crises, some of which are handled badly by authorities, reducing faith in market institutions. Inflation and defaults are equally worrisome for a net debtor because these test the confidence of foreign creditors. Wealth holders inside the country and out start to wonder whether the authorities have things under in control.

3) Pre-Crisis: Crises become more frequent and severe, and remedies increasingly drastic, with ever more heavy handed government intervention in what were formerly considered sacrosanct market institutions and processes. Banks and other institutions fail. There is talk of nationalization. The pre-crisis phase may last for a year or two.

4) Preparation: Long before the event occurs, such as the Russian bond default in the case above, that triggers the flight of capital from the accounts of those in-the-know to distant shores, insiders prepare for a potential economic D-day with strategies to preserve as much of their wealth as possible. They set up foreign accounts and make ready to transfer funds at a moment's notice. They gradually liquidate bond, stock and other funds to liquid assets to move to those foreign accounts with a phone call – not in writing. The preparation process can occur on and off for months or as long as two years. I've had conversations with fund managers who have clients who have been discussing the topic since the Bear Sterns take-down.

5) Crisis: An event occurs, such as the Russian bond default, that causes the currency to fall as private institutions sell. Those not in the know panic and try to follow the prepared insiders out the door; expatriation of capital and repatriation of foreign capital begins. The currency collapses as rubles or pesos or reals are thrown onto the market as assets are converted to dollars or euros or yen en masse for deposit offshore. This happens in a matter of weeks.

6) Mitigation: One day the government slams the door shut with capital controls, trapping foreign and domestic investors alike.

7) Recovery: What happens next depends on the structure and state of the nation's economy. In the case of Korea during the 1998/99 currency crisis, for example, Harvard students had to go home to their families in Seoul that year because the WON did not cover the tuition. City parks quickly filled with the unemployed when only months before unemployment was largely unknown. Koreans, part of a culturally homogeneous and egalitarian society, quickly scraped together more than a billion dollars of jewelry, coins and other personal gold items to give to the government voluntarily to be melted down to shore up the central bank's accounts, which combined with a massive loan from the IMF stabilized the currency and economy.

Korea, like Russia, had a strong basis for recovery. Korea's powerful industrial base, deep pool of household savings, strong work ethic, high education level, and group spirit combined with strong demand from the US and Europe enabled it to quickly rebuild. When I was there only four years after the collapse it was as if nothing had happened. All that was left were the emotional scars and the lesson: maintain at least a year's foreign exchange reserves.

Russia started to pump the oil that the inefficient Soviet system could not get out of the ground.

Assuming the US is in some stage of a currency crisis process, what stage are we currently in? (The UK is farther along, in my view.)

Keep in mind that the stages of the process are non-linear. We can revert from one back to another and forth again, and for example muddle between pre-crisis and preparation phases for years. However, these processes tend to escalate if there is a negative political feedback loop with foreign creditors, such as might be expressed through trade barriers or even armed conflict.

At this point I do not see how we avert the full trip. We have only averted "Poom" so far because central banks stepped in to support our housing and treasury market in 2003. But counting on the long term good will of foreign governments is an invitation to disaster, because one of these days one of our creditors is going to force us to make an impossible decision between a political ally and high interest rates.

I feel that things are unfolding as described in this post. In non-technical terms, it is possible that since most of us have not experienced such events (strong dis-inflation or deflationary scare, if you will) in our life times, it scares the hell out of us.

EJ always stresses that the fundamental difference between the great depression, the deflation in Japan and this one is that "USA is a net debtor nation". I think thats a very imp difference. So it seems, we have to wait for the event when one of the creditor nations starts dumping the dollar leading to a chain reaction OR systematic devaluation of dollar according to the dollar ratchet theory.

This is how I understand things, correct me if my understanding is flawed.

I am a noob to macro-economics and investing. I think my patience is already being tested and am sure most of you feel that way. FYI, I started investing at the beginning of this year and I am ~45% in physical PM's :p. I will post my % allocation on "How one ituliper is invested" thread soon.

[photoncounter]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Jayhawk and Hoodoo, inflation and deflation can occur at the same time. From one of EJ's posts:

Price inflation can occur at the same time as asset deflation(the former being a function of money supply with the latter being a function of debt)

[rdgmail]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Global Deflation? Unlikely, but possible. Deflation (the way I see it) is a general goods price decline (not just a shrinking of money supply including credit supply). Global deflation would require all global currencies (on average) to increase in value relative to the cost of some basket of goods. I'm sure someone will correct me if I'm wrong. Predicting global deflation with multiple currencies is beyond my capacity, but could happen if we have another Depression.

In the US, we will have continued asset and debt deflation. And as long as the government stays behind the curve in terms of supplying more money and credit to the system than is being destroyed by credit contraction, general price deflation remains possible. Imminent deflation will be signalled by a crashing long bond market (TLT below 80???). Hasn't happened, yet. But before we get to deflation, we would first have to get beyond disinflation - where we are now. There are still enough remaining inflationary pressures pent up in the economy that it's premature to experience actual US deflation.

Prediction: If the Fed and Treasury (further) screw this up, US may face very minor general price declines (i.e., deflation) such as Japan had in the 1990s (even Japan barely had deflation, and only in a few years of the last twenty, if memory serves). But after a couple of years, the Fed and Treasury will catch up, and figure out how to fuel-up Ben's helicopters for appropriate money drops. Then we're off to EJ's Poom - high inflation, but nothing approaching hyperinflation.

Translation: I believe Ka might go beyond disinflation and include actual deflation (general price decline) during one of the next three years, then followed by Poom.

[Jay]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Lukester,

I see it this way: EJ and the other major posters know more macro than I and I listen to them. I have learned more here swimming among the smart minds of the internet than in any facet of my life since med school. And I am not just talking econ by any stretch. Of all the intelligent posters here, EJ has a track record of boldly calling shots that others would not dare and he has been right about almost all of his major calls. His analysis is clear and track record solid.

Beyond this area of debatable facts is something different, subdued and unconscious. My job as an emergency doc is about making quick judgments and calling things correctly repeatedly, with sometimes limited information. If you are not right, you switch gears on the fly until you are. I make my living accessing that part of the brain that is usually quiescent and listening to it when it hums. If it screams, and it will, you pay attention. Every time I have been burned it is because I haven't listened to the voice, every time. It's probably the same nebulous place that EJ got his gold call from. It does exist.

I make judgments about people and their conditions in an instant and THEN follow my hunches through with a reasoned approach. That is the only way to be an effective ER doc. Sometimes you do things because you just feel that something isn't right. You may not have a good reason. The nuts and bolts of my education are secondary to treating patients effectively believe it or not, very important and necessary, but secondary. I am here on this site not through reason, although it has passed that test over time too, but because it passes my unconscious sniff test every day.

And that is why I am convinced that we are experiencing a Ka event because EJ called this scenario and I believe him, both in my gut and through the great debates here. Wouldn't what we are in today be exactly what a Ka event would look like in an inflationary depression? Confusing, mixed signals, made murkier by government intervention. I am geared for commodity/PM inflation and asset deflation all the way. POOM is coming, it may just take a while.

Cheers.

[hoodoo]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Agreed - the thing that impresses me is that the magnitude with which each is growing. It seems to me at some point, we are going to have a break one way or another.

On this point I'm in the camp of a short period of shocking deflation followed by massive inflation.

Hoo

Jayhawk and Hoodoo, inflation and deflation can occur at the same time. From one of EJ's posts:

[Jim Nickerson]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

I have such a hard time talking myself into deflation given all the economic dynamics that seem inflationary to me. That said, I can't explain what happened today with commodities (hard selling), the dollar (huge rally) and treasuries (negative yield??). Those three observations all point towards deflation, do they not? How is that possible when our government is creating so much money? I assume most of you have seen Bart's M3 projections. Is that not inflationary?

I used today as a buying opportunity to order more physical gold from my dealer and I even added shares of AUY which got absolutely slaughtered today. I still believe inflation will eventually rear it's head but I am awfully confused with what's going on in the market. I keep itulip open all day and scan threads hoping to gain insight.

I only have about 2% of my worth in traditional stocks. I have about 10% spread out between AUY, JJA and CEF, 20%-25% in gold and silver bullion and the remainder in cash (dollars and a considerable euro position).

I hope I'm positioned ok. I'm not sure if this helps any of the rest of you but there it is.

Your're an interesting guy, thanks for putting up a bio. Is Mercer like in GA? Must be more money in basketball than in MBA finance jobs right now.

Marc Faber has been touting strength in the dollar for some while now, and it is my impression he is talking months, a year, more than days or weeks--but what does anyone know about the future for sure?

I guess the important thing is to pay attention to the markets and react as necessary as opposed to maintaining some stance that you believe "has" to be what will happen. One can lose a lot of money while being correct about something, but at the same time being too early.

The FDI is still showing a strong upward move, through last Saturday's update. Despite what I don't know about the FDI, I wouldn't disregard it--but that is just my opinion.