Economics Questions

Re: Prices are going to go through the FLOOR?!?

Kakugo — Sun, 08 Nov 2009 09:55:52 GMT

Link working now but it's quite slow...

On the issue of deflation or deflation in Europe all I can say is this. I am not exactly what you call a shopaholic. Apart from supplies I use on the job my two main expenses are foodstuff and fuel (I even cut down on the amount I spend on books) so I may not be the best judge but prices on the average have increased this year. Energy prices are skyrocketing (and I've just signed a contract freezing natural gas prices for the next two years... thank God!), food prices are slowly but constantly rising (EU agricultural politics anyone?) and shipping costs are going through the roof. OK, rubber products prices have slightly declined but that's all I can think about right now. So if deflation is coming is surely not in retail and workshop supplies prices.

Re: Prices are going to go through the FLOOR?!?

ThreeTrees — Sat, 07 Nov 2009 23:21:23 GMT

This may be helpful:

Is there currently Inflation or Deflation?

"Currently there is a heated discussion on where prices are heading to. For Europe at least we can see that massive deflation now is about to hit the streets as unemployment has been avoided in the past and purchasing power had been artificially maintained. The coming break down in employment levels will cause Europeans to experience more deflation.

In the US the situation is slightly different. While asset prices (houses, etc.) are still in decline, there will be a predictable pick-up in overall price levels amid the Dollar collapse. The reasoning is simple:

Inflation is about to take the leading role for the US consumers, very soon. Imported items will increase in price, due to the Dollar depreciation. Just keep in mind that Oil is not only used for energy, but also for fertilizers, all chemical goods and especially plastics. Most of these products are produced abroad. What remains produced in the US is 70 percent services and only 30 percent has been goods. (that was before GM went down)

The arguments of the deflationist however are not incorrect. The reason why Hyperinflation does never come from one day to the other is that the production base (supply) has to be destroyed first! The slow pick up in overall price levels, which many people associate with Inflation is therefore only moderate at this moment of time. It is the consequence of increasing price levels during a phase of ongoing supply destruction. Only then, when supply destruction finally brings supply to levels below demand, we will see hyperinflation to start. of course only, if the central bank does not take an extremely aggressive rate hike policy stand. That however is pretty unlikely in times of bank failures..."

Re: Prices are going to go through the FLOOR?!?

american.swan — Sat, 07 Nov 2009 19:10:22 GMT

Link STILL works for me.

Re: Prices are going to go through the FLOOR?!?

Kakugo — Fri, 06 Nov 2009 09:52:33 GMT

american.swan:

Dollar Rally Predicted http://bit.ly/2nbh3U
with terrible results.

SANE or INSANE thought? Why does this make sense? Why does Jim Rogers agree?

Link doesn't work for me...

Re: Prices are going to go through the FLOOR?!?

american.swan — Fri, 06 Nov 2009 03:31:27 GMT

Dollar Rally Predicted http://bit.ly/2nbh3U
with terrible results.

SANE or INSANE thought? Why does this make sense? Why does Jim Rogers agree?

Re: Prices are going to go through the FLOOR?!?

jct181 — Fri, 06 Nov 2009 03:07:44 GMT

The Fed increased the money supply by 120%. When the banks start lending that money, we could see hyperinflation if interest rates aren't raised (to a very high rate) to suck the money back in.

And if the world starts to dump dollars, we'll probably see hyperinflation.

Re: Prices are going to go through the FLOOR?!?

Caley McKibbin — Fri, 06 Nov 2009 02:22:06 GMT

I predict both inflation and deflation at unspecified points in the future. I also predict that the Sun will both rise and set at unspecified points in the future. *Waits to be correct*

Re: Prices are going to go through the FLOOR?!?

american.swan — Thu, 05 Nov 2009 22:20:46 GMT

Sphairon:

Anyhow. If a bank calls in a loan ("force the wealth created with credit to return to the bank")

I didn't say or hear that. I said "buy". The bankers will buy assets through "holding companies" or cohorts of theirs because they'll have cash, no one else will have any. The people living in US tent cities today are broke. That's why they are there. If they had any money or job they wouldn't be in the tents.

Wealth is being destroyed. Investments wiped out. Jobs lost. When unemployment is 50% or more, who has money? The people don't have money, the bankers or some say banksters have cash. And as the spiel goes, they will buy up whatever they want. Maybe they want google or microsoft or cisco or IBM or FORD or whatever they want, they'll be able to buy cheap, because money is hard to find, because no one has any. The government is trying to put money into the system to balance the lost wealth, but it isn't working. People are still losing jobs.

Before hyperinflation sets in, the story goes, huge price deflation, cause no one has any money. No one has any jobs, no one has any money, savings wiped out, food is hard to find.

Many nations have gone through hyperinflation. Just before hyperinflation, what happened? The spiel I'm hearing says this is what the banks have done time and time again to take control of stuff they want.

Maybe this time will be different, maybe the story is all wrong and will go into hyperinflation in a hurry.

Re: Prices are going to go through the FLOOR?!?

onebornfree — Thu, 05 Nov 2009 17:20:44 GMT

american.swan:

Please note: I'm scared out of my skin right now over this.

Unfortunately [ or fortunately-depending on your point of view] , for a variety of reasons, nobody can reliably , consistently predict future economic events- regardless of the economic school adhered to [eg Austrian, Classical, Keynesian, etc etc.].

A realistic long term savings plan must be able to equally and simultaneously protect ones savings against all common historically occurring economic events that may be experienced over the course of ones own life - e.g inflation, hyper -inflation, recession, deflation, "tight" money, and yet still be able to sufficiently profit if prosperity [ i.e. "good times"] once again comes around.

The usual psychological signs of an unbalanced approach to long term savings that does not sufficiently protect the saver against any or all of those possibilities is extreme nervousness about the financial and economic future. This is understandable.

However, to reach the state of extreme nervousness you are experiencing it was first of all necessary for you [or anyone else] to accept the premises and conclusions of the article you linked to.

However there is no guarantee that the predicted events will occur in your lifetime, they might, but they might not.

In order to survive and grow, [and for you to not become a "basket case" in the process], your long term savings must at all times be capable of instantaneous [i.e no buying/selling required] ,equal [i.e no bias towards any one scenario] protection against the possibility of the reoccurrence of any/all previously historically occurring economic scenarios briefly outlined above, including of course [but not limited to] a deflationary depression[ which is what I assume the article is predicting as being "inevitable"].

Re: Prices are going to go through the FLOOR?!?

Sphairon — Thu, 05 Nov 2009 13:09:43 GMT

american.swan:

1. The central bank and government are two separate entities.
2. The bankers running the FED don't care about the GOV or the People.
3. Fiat money is not really completely fiat. It's tied to the labor of the citizens of the country.
4. The bankers will force all the wealth created with it's credit to return to the bankers. This the individual says is what they have done over and over again.
4. Then, after the wealth has been soaked up by the bankers, hyperinflation will set in.

It's true that the central bank is not a government agency. It's also true that paper money is valued by the amount of goods and services purchasable with it. However, this appears to me to be the case with any money - gold money also derives its value from the amount of goods and services one can buy with it, as far as I know.

Anyhow. If a bank calls in a loan ("force the wealth created with credit to return to the bank") and the debtor can't pay, they may seize the property purchased with their loan, but the seller of that property still owns the money gained by his trade with the previous debtor, unless the seller has spent it anywhere else - you see where this is heading. The money's still there and the property's still there, nothing's gone missing. Now, if the borrower still owns the money granted to him by that loan, he can just pay it back to the bank - which could, in theory, now "destroy" this money and try to create price deflation, but why should it? It would be self-immolation - unlikely behavior for a bank.

And since property seized by banks instead of a loan does not cease to exist, I don't see why we should expect sudden hyperinflation. Theoretically, ill-tempered bankers could try to "hide" seized property and thereby attempt to manipulate the ratio of money to purchasable goods, but this, again, would be self-immolation because it would totally drown the bank's balance sheets - which would neither show a monetary value to be given out as loans nor property sellable for monetary value. In other words, I don't see why the bank wouldn't bankrupt itself in the process. Bad idea, perhaps.

Re: Prices are going to go through the FLOOR?!?

american.swan — Thu, 05 Nov 2009 09:07:51 GMT

I just had another explanation from someone advocating deflation. Here's the spiel they give.

1. The central bank and government are two separate entities.
2. The bankers running the FED don't care about the GOV or the People.
3. Fiat money is not really completely fiat. It's tied to the labor of the citizens of the country.
4. The bankers will force all the wealth created with it's credit to return to the bankers. This the individual says is what they have done over and over again.
4. Then, after the wealth has been soaked up by the bankers, hyperinflation will set in.

People in the USA will see massive deflation and a massive loss of wealth. They are slaves to debt, slaves to the bankers who created that debt. The bankers will buy up all the wealth they want, Companies, land, whatever they want. Then, after the FED owners have received their pounds of flesh for using their money, their credit scheme, then the government will induce hyperinflation of the money.

This is the spiel I'm hearing. Is there any chance it's true.

Re: Prices are going to go through the FLOOR?!?

sthomper — Thu, 05 Nov 2009 08:08:56 GMT

"Unlike inflation, which divides the underlying real wealth pie into smaller and smaller pieces, credit expansion creates multiple and mutually exclusive claims to the same pieces of pie."

i have read several times that inflation was an expansion of money and credit...the person writing the oildrum article now wants to call inflation only a money increase and the money unit-denominated credit specificaly 'credit expansion'.

if inflation involves adding money to an economy and (under a frb paradigm) the credit from that money, then inflation is just that money can be inflated and money + credit can be inflated.

i dont know why this idiot wont specify which aspects of the currency (money and/or credit) are the 'problem' instead of going on about some redefining of the inflation term.

probobly a fake article written by a very dishonest person.

Re: Prices are going to go through the FLOOR?!?

sthomper — Thu, 05 Nov 2009 07:55:13 GMT

"The problem is not deflation. The problem also is not inflation."

has inflation ever caused problems?

Re: Prices are going to go through the FLOOR?!?

sthomper — Thu, 05 Nov 2009 07:48:20 GMT

the reason behind some austrians?? saying that deflation (the price variety??) is coming???

well i posted this info from a another mises thread -- "In an online debate with the Atlantic's economics writer, Megan McArdle, Shell observes with disapproval that, when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car'than they did during the early 1970s. Over that same period, Census Bureau tables show, US median household income rose by at least 18% in constant dollars . . ." if true???

http://blog.mises.org/archives/010741.asp#c604991

according the the above quote americans now spend-less-for-the-same on many goods than they did in the early 1970's.

i guess you see that as price deflation over a few decades time. is there a greater abundance of other goods experiencing price-inflation that would make this true: (or are there even more goods that americans spend more real-dollars on)

"after 1973, when real wages grew stagnant for two decades...The stock market did not outperform general economic growth. After taxes, it did not match economic growth.. -- http://www.lewrockwell.com/north/north555.html "

20 years of stagnant wages seems to me to be long term price-inflation??

so what exactly are you fearful of?

Re: Prices are going to go through the FLOOR?!?

american.swan — Thu, 05 Nov 2009 03:17:12 GMT

So generally the replies to this article I posted are against the article. (Against deflation)

I'd like to know more about the reasoning behind "Some Austrian economist believe deflation is coming"

This whole discussion scares me because the purchasing power of any gold I might be holding. Also, my home is not in the USA. I live in Asia. If the US has hyperinflation, then I assume all paper currencies will have some inflation and so gold is good to hold. Let's say the US hits a deflationary depression, then what happens to the Asian currencies and the purchasing power of gold in Asia. I'm nervous.