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Thread Title: Do we agree that we're headed for inflation and not deflation?
Created On Wednesday June 02, 2010 2:14 PM
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KUCH
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Wednesday June 02, 2010 2:14 PM

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Certainly most of us would agree that Commodities (PM's) are a hedge agaisnt inflation, that's one reason why we're stacking. The opposite outcome is deflation and commodities or PM's would not be a safe haven, right?

I believe we are in a inflation cycle and that cylce will continue. Who believes we are headed for a deflationary cycle and why?

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Bear
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Wednesday June 02, 2010 2:31 PM

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Deflation. M-3 is declining at an accelerated rate. The period of deflation may be followed
by a period of inflation, but it is a way off.

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Justacommeman
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Wednesday June 02, 2010 2:34 PM

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I will let cohodk field the deflation portion of this program



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SportsModerator1
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Wednesday June 02, 2010 2:49 PM

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renman95
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Wednesday June 02, 2010 3:04 PM

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D then the big I.

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jmski52
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Wednesday June 02, 2010 3:06 PM

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Certainly most of us would agree that Commodities (PM's) are a hedge agaisnt inflation, that's one reason why we're stacking. The opposite outcome is deflation and commodities or PM's would not be a safe haven, right?

This is why things are so confusing. We see massive creation of money that doesn't show up in the economy because of the massive amount of money destruction done by the creators of derivatives and now being hid by the banking system/government alliance who are hoping to fleece the taxpayers enough to begin making a payoff for their failed bets at the same time that they are hoping to buy enough time for the economy to recover enough to generate earnings which may not happen because of the draconian measures being planned and higher taxes that will be required to stave off collapse of bloated governments and compulsive governmental overspending.

Basically, we are looking at a time when promises are routinely being broken by those who make the rules, and that leads to a lack of trust in those institutions. Private money is not being lured back into the market that is seen as rigged. Mortgage defaults are not being cured by another relaxation in lending standards. Balance sheets are not being cured by convenient changes in accounting standards that were designed to give an accurate view of the viability of corporations or other organizations that *were* bound by the FASB's (old) rules of finance, i.e., common sense.

The old rules were not wrong - they were simply violated and the violators are now in charge of the asylum. There is no way that a system can sustain itself by violating things like common sense, addition, subtraction, laws of physics, laws of chemistry, and ethics.

It's that simple. You can't eat gold. Nor can you eat stock certificates, bank notes, or debt agreements. But, if I had to pick one of those, it would be gold - hands down.

In terms of the OP's question - I would expect horrendous volatility, which to me means both inflation and/or deflation in unpredictable ways, maybe simultaneously in different markets -such as a deflation in housing prices while experiencing a bad inflation in commodity prices and high interest rates at the same time.

In other words, I expect living to get more expensive and money to become more scarce. I'm hoping for the opposite, but I really don't know what to expect first. I'm just waiting for the other shoe to drop. I hope it never does.

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Edited: Wednesday June 02, 2010 at 3:27 PM by jmski52

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Buffalode
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Wednesday June 02, 2010 3:29 PM

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I also think we will see a lot of volatility as jmski52 stated. It seems to me that severe deflation (if it happens) would likely see gold benefit from flight to safety investment, or flight to quality, whatever name is used. Can we have severe deflation at this point without a significant downturn in the economic recovery?


-------------------------
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Line from a Blues song about the economy, The Panic Is On by Maria Muldaur: "Those that ain't broke are badly bent"
All editing, unless otherwise noted, is due to a a serious lack of typing skills.

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roadrunner
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Wednesday June 02, 2010 3:55 PM

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Certainly most of us would agree that Commodities (PM's) are a hedge agaisnt inflation, that's one reason why we're stacking. The opposite outcome is deflation and commodities or PM's would not be a safe haven, right?

There's a 3rd ingredient to the mix. That is, PM's are a hedge against a lack of confidence in said currencies/govt's. We could have inflation or deflation and have loss of confidence in the currency. As far as what mix occurs and when, that remains to be seen. As Jmksi52 has said, expect varying degrees of asset deflation/destruction and asset inflation/price appreciation in the coming months/years. PM's were not a hedge against moderate inflation during the 1980's and 1990's because there was strong confidence in the US dollar, USEconomy, and US Govt. While there certainly was major league asset inflation occuring in stocks and bonds (while commodities were crushed), that was because our inflation was essentially exported overseas (cheap foreign labor and goods). Had the US not been able to export its inflation for 20 yrs, it would have certainly shown up in spades in the prices of our goods and services. Look at how much the cost of education, health care, lawyers, homes, stocks/bonds, etc. appreciated during those 20 yrs.....because there was no effective substitute for them from overseas....nor could they be manufactured overseas. That is where the majority of price inflation went. It didn't appreciably go towards food, PM's, oil, industrial metals, appliances, cars, etc. But since it is considered "good" by the establishment when stocks and homes appreciate at rapid rates, that is never mentioned as inflationary. Only when the prices of homes and stocks fall is anything mentioned (ie deflationary). The establishment makes its money by siphoning off its %share as assets are rising in price.

As far as inflation and deflation, we're experiencing both right now in varying degrees. We've probably not seen the peak in asset inflation or deflation at this time.

roadrunner

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Edited: Wednesday June 02, 2010 at 4:05 PM by roadrunner

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InYHWHWeTrust
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Wednesday June 02, 2010 4:05 PM

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A confusing thing for me (economically challenged) is that when prices go up real fast, like they did in the housing market ca. 03-07, (or dot com) the term 'bubble' is used, not hyperinflation. Then, when the 'bubble bursts' and prices start to correct to more realistic levels, or even overcorrect, then we start hearing 'deflation' in home prices, not 'correction of bubble.'

Then even more confusing, ...systemic deflation would result in a death spiral the way I understand it, in this fiat game we're playing. So, this is to be avoided at all costs, so 'print print print' is the Rx. And now that we don't actually 'print money' but just create electron-digit thingies, one wonders how 'hyperinflation' takes hold, what is the spark that sets it aflame ?

It seems to be all about psychology of the masses (personified 'market') and staying ahead of the psychology. Which I can't do to well from past experience. Do we really want J6P to come to his senses tomorrow? I don't think I do, just yet.....

So I hang out here and spend time getting educated/ watch the discussion back and forths, ... and get more prodding to DYODD.

edited to add: RR's post was not up when I was typing this. Feel like I owe RR and Cohodk admission price / tuition for their back and forths

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Edited: Wednesday June 02, 2010 at 4:07 PM by InYHWHWeTrust

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derryb
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Wednesday June 02, 2010 5:26 PM

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With the true definition of inflation being "an increase in the supply of money" I believe this chart clearly indicates the direction we are headed:



Price inflation, normally brought about by money inflation, is an entirely different discussion and very possible in in a deflationary enviornment.

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mrearlygold
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Wednesday June 02, 2010 5:47 PM

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Spent over $700 last month at Publix. Don't remember ( don't want to remember ) how much we spent at whole foods.

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cohodk
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Wednesday June 02, 2010 7:13 PM

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<< I will let cohodk field the deflation portion of this program >>



I've stated for the last 2 years that deflation was more likely as there is too much global debt. Been right so far. Inflation will come when demand for debt exceeds debt destruction.

I see the possibility of another major currency becoming very weak against the US dollar. This again will be at the very least disinflationary.

Right now I see energy and basic commodity prices being too high for current demand. So either demand picks up--unlikely, or prices fall--likely.



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Edited: Wednesday June 02, 2010 at 7:15 PM by cohodk

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newmoney
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Wednesday June 02, 2010 8:16 PM

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I'm sure a new term will be coined for what we are going to experiance.
I understand m3 at the moment is on a downward trend, in fact it was reported that the fewest amount of coins were produced last year since the early sixties.
the problem is and the reason for that is, nothing is being circulated. most money is being hoarded. by indivisuals, banks, business, etc.
so it becomes a trap.
It gets reported as lack of inflation or deflationary. But all the signs show the opposite, in things that must be bought, like food.
And for another example - I own a construction busniess & I have had 2 lumber increases this year as well as other materials.
For example in april I paid $11.33 for a sheet of 1/2" plywood. now, as of may 1st it went to $18.68!!
All things I deal with except labor is getting more expensive at a fairly dramatic rate. But the goverment says there is no inflation so it must be true!

If interest rates stay low we will actually see more inflation in the things we consume & need everyday, which may cause deflation in assets as people panic & have less to invest as the cost of daily living goes up.
The funny thing is , is that if interest rates go up it will probally better stimulate the economy as people will let go of more of the stashed cash. That includes the banks.
If you were a bank would you make long term loans right now when you could do better buying treasuries? which in turn keeps rates lower.
The other thing that needs to be looked at is, most production is below pre-bubble levels and 30 yr averages. Does it really make sence that this will be sustained? or go lower for any long period of time?
Or does it act like a future spring on oversold or under produced items?
there may be distractions and divertions along the way but we are only headed for inflation. all that other stuff is just a head fake.
Like a high tide it will raise all ships, including labor. but the incidious thing is, people wont be any richer, they will just be handling more money.

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renman95
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Wednesday June 02, 2010 8:42 PM

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<<

<< I will let cohodk field the deflation portion of this program >>



I've stated for the last 2 years that deflation was more likely as there is too much global debt. Been right so far. Inflation will come when demand for debt exceeds debt destruction.

I see the possibility of another major currency becoming very weak against the US dollar. This again will be at the very least disinflationary.

Right now I see energy and basic commodity prices being too high for current demand. So either demand picks up--unlikely, or prices fall--likely. >>


///
Is that why gas is low considering oil in the gulf, summer driving season, mid-east flare? Two years ago this scenario would have brought $5+ gas.

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drwstr123
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Thursday June 03, 2010 3:36 AM

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Has printing massive amounts of fiat currency been tried before????
Gee...what was the result???

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ebaytrader
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Thursday June 03, 2010 5:38 AM

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<< With the true definition of inflation being "an increase in the supply of money" I believe this chart clearly indicates the direction we are headed:



Price inflation, normally brought about by money inflation, is an entirely different discussion and very possible in in a deflationary enviornment. >>




The chart ia a measure of the expansion or contraction of wealth. It does not portend inflation or deflation in and of itself.


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derryb
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Thursday June 03, 2010 7:17 AM

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<<

<< With the true definition of inflation being "an increase in the supply of money" I believe this chart clearly indicates the direction we are headed:



Price inflation, normally brought about by money inflation, is an entirely different discussion and very possible in in a deflationary enviornment. >>




The chart ia a measure of the expansion or contraction of wealth. It does not portend inflation or deflation in and of itself. >>


Line in chart shows year to year rate of change in supply of money. Increase in money supply = inflation. Decrease in money supply = deflation. Chart clearly shows deflationary trend since 2008.

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Edited: Thursday June 03, 2010 at 7:18 AM by derryb

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topstuf
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Thursday June 03, 2010 7:28 AM

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<<

<< I will let cohodk field the deflation portion of this program >>



I've stated for the last 2 years that deflation was more likely as there is too much global debt. Been right so far. Inflation will come when demand for debt exceeds debt destruction.

I see the possibility of another major currency becoming very weak against the US dollar. This again will be at the very least disinflationary.

Right now I see energy and basic commodity prices being too high for current demand. So either demand picks up--unlikely, or prices fall--likely. >>



Prices fall, revenues fall, debt (if available) rises (comparitively), currency fails.

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cohodk
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Thursday June 03, 2010 8:33 AM

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For example in april I paid $11.33 for a sheet of 1/2" plywood. now, as of may 1st it went to $18.68!!

How much was this sheet of plywood in 2006?


Playing with numbers can be fun. If something drops from 100 to 50 then comes back to 100, then it gets reported as a 100% increase. WOW!!! Look at that inflation!!! When in reality prices are the same as they were before.



The other thing that needs to be looked at is, most production is below pre-bubble levels and 30 yr averages. Does it really make sence that this will be sustained?

It absolutely makes sense. We had a massive demographic bubble over the past 30 years that demanded lots of goods. That bubble is now demanding less. It can and will be sustained until we have an acceleration in population growth rates.

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Edited: Thursday June 03, 2010 at 8:43 AM by cohodk

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cohodk
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Thursday June 03, 2010 8:37 AM

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<< Has printing massive amounts of fiat currency been tried before????
Gee...what was the result??? >>




Printing money to combat deflation is much different than printing money due to inflation.

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