Feeling deflated? You ain’t seen nothing yet
We don’t want to experience runaway inflation. But beware its opposite, deflation, which now threatens (see also this).
What’s so bad about lowered prices? Plenty, at least potentially. Too broad a decline can lead to lessened salaries that then become inadequate to meet fixed costs such as mortgages. Another danger is a rise in unemployment, as businesses lay off workers to cut costs.
Is this just a case of the NY Times being its usual scaremonger (or deflated, if you prefer) self? If so, it’s certainly not alone; Google “deflation” and you’ll get a host of worrisome stories from around the world. Here’s a Canadian sample:
Deflation is a problem Canadian policy-makers haven’t had to face in decades.
“I think it’s an economist’s, a central banker’s, just about anybody’s worst nightmare,” said Craig Wright, the Royal Bank’s chief economist.” True deflation – a general, sustained decline in prices – comes about alongside a very ugly economic environment.”
Like most of you, I’m greatly enjoying the lowered gas prices. If the decline is limited to that sector, that’s not so much of a problem. But watch out for falling prices across the board.
And this development is certainly not a good sign.
In Deflation, you have three problems. First, wages tend to be inflexible, so wages don’t deflate with prices, effectively increasing labor costs, and driving up unemployment. Second, deflation effectively increases the burden of debt, making it harder to pay off loans (this is what the whole “cross of gold” thing was about: using the inflation of adding silver currency as a quick fix to reduce the debt of farmers). Third, it lowers investment: if your money is getting more valuable just sitting under your bed, why take the risk of loosing it in an investment?
I’ve read that we are facing a demographics problem in the US, China and Europe. What each of these countries needs to do is find a demographics partner; for the US it would be Mexico, for China India, for Europe Africa. We could import young people and help the respective countries deal with booming populations while supplying young people to buy our housing and do the jobs young people do. It is time to thing beyond national boundries.
excerpt:
Watanabe vowed Toyota would grow so lean it would realize profitability even if its worldwide sales fall as low as 7 million vehicles–what he called the basic “bottom line” for Toyota.
I like that attitude.
Wish you all guys here a Happy 8 Days Of Hanukkah“
Yes, NEO, deflation is much harder to get out of than inflation. Therefore it is much more feared by economists and central bankers.
The Treasury and Federal Reserve have the job of providing enough money to keep commerce healthy. With the recent destruction of so much capital and confidence we are bordering on tipping into deflation. That is why the government is reliquifying the financial sector and loaning money to the car companies.
I was only a child during the depression, but I do remember that my parents, like many people at that time, found it very hard to make ends meet. As an example, I never owned any new clothes until the end of WWII. Much business was done by barter since few had any money. I tell people who are complaining about the government taking action to avoid deflation, “Thank your lucky stars they are. You have no idea how bad it could get if deflation gets established.”
The Obama administration will probably carry it too far. The big deficit spending will go on too long and we will undoubtedly see some troubling inflation in four or five years, but that can be dealt with by fiscal policy and high interest rates.
i am more worried about something else..
the switch of two countries from using dollars as their currency of purchases… along with rampant printing… were responsible for this kind of thing..
you see… if the value of everything goes down, what happens to the value of the currency? notgeld anyone? homepages.paradise.net.nz/richard7/notgeld-images/rbst5b-f.jpg
in other words, they are printing money willy nilly as value has dropped… pretty soon there will be so much floating around each unit will be worthless or not worth enough to buy that cheap stuff.
an interesting by-product of this period was the rich variety of banknotes churned out from each town, displaying values of anything up to 100,000,000,000,000 marks!
(the link above is dedicated to the beauty of these notes).
http://www.geocities.com/Vienna/5373/notgeld/1923life.htm
during such times, salaries were paid twice a day as the value of the currency changes between the morning cup and twilight..
The chief cause was the Reichsbank’s policy of simply printing more money to counter the country’s debt.
The inflation peaked in 1923 where for the last 5 months it was a staggering 300 million percent. When the inflation was finally stopped by the introduction of the Rentenmark on 16th November 1923, the exchange rate was 4.2 trillion marks to the US dollar – ie 4,200,000,000,000 marks.
deflation coupled with rampant printing….
[while at the same time the world stops using the currency as the exchange medium, the key thing supporting its value and reason for so much in print. just like putin and chavez just did. if china and sauds do similar, you guess what the outcome is]
right after this, a young man who took the masses by storm with tales of change. he had interesting changes in mind, and worked with a real easter progressive. together, they changed the world in a very short time.
today we have many similarities to the warm of of that time… http://www.daybydaycartoon.com/122108.jpg
With todays copy riot in a california mall, and the fact that each fringe group is starting to get angry… (you see, they didnt vote to elect the best man to office, they voted to get something out of it, and if they dont, what political methods will they use?)
there are a lot of things going on that are not even on the discussion table…
they are doing the worst things because they want the worst outcome…
“Every collectivist revolution rides in on a Trojan horse of ’emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ’emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains.” — Herbert Hoover
“Gentlemen, comrades, do not be concerned about all you hear about Glasnost and Perestroika and democracy in the coming years. They are primarily for outward consumption. There will be no significant internal changes in the Soviet Union, other than for cosmetic purposes. Our purpose is to disarm the Americans and let them fall asleep.” — Mikhail Gorbachev
“The threat of environmental crisis will be the ‘international disaster key’ that will unlock the New World Order.” — Mikhail Gorbachev
So, basically, many of us are screwed! Great! Ugh.
http://msmedia.dot.ca.gov/governor/20081218_press.asf
The govinator speaks
Amazing Executive Order in CA
http://gov.ca.gov/executive-order/11310/
screwed? would that it would be so pleasant.
“If the intellectual dominance of socialism remains unshaken,” wrote Ludwig von Mises during the Great Depression, “then in a short time the whole co-operative system of culture which Europe has built up during thousands of years will be shattered. For a socialist order of society is unrealizable. All efforts to realize Socialism lead only to the destruction of society.”
right now all their intervention is telling the world not to invest in US currency or anything else. why? for the same reason people dont really invest in russia, capricious action by the state makes working with that states currency too risky.
whats devaluing everything is our own lack of trust in the market in which we are invested in to preserve an artificial structure of work value so that we can survive in huge numbers (and have a lot that we mostly dont appreciate).
want to buy stock in a company? will the state bail out there competitor? want to by an option on a company? will the state wipe out your actions by their arbitrary actions? want to buy property? what kinds of people make up a percentage of this area in which the state props them up, and their buying power to support local economy is less than nil as they are a drag on state?
right now, every economic decision of any large scale is being confounded by the states actions not stopping.
look at it this way.. you can change your bets around guessing but the minute the man lets the ball go, all bets are frozen… so basically investment based on rules is turned into pure speculative gambling by the actions of the croupier having his hand on playing favorites at the table.
right now no one knows what anything is worth since the state is changing what things are worth, what companies are worth, what property is worth, and what all that might be worth in the future given laws and taxes. they are even changing what the currency is worth and by doing so with all this changing the wealth of investments in place over the past 50 plus years (some investments have 100 year contracts).
“The creation of wealth is not simply a physical process and cannot be explained by a chain of cause and effect. It is determined not by objective physical facts known to any one mind but by the separate, differing, information of millions, which is precipitated in prices that serve to guide further decisions.” Hayek
If you do not trust the market, then you no longer believe in freedom or capitalism. In that event you are a socialist on the road to serfdom.
Hayek
so maybe the goal is the destruction of the market and the seeing of the country into a new political state that undoes the old one since no one wants to trust the market when people are drivin to starving…
after all… as long as they keep twiddling, the market cant decide what the value of anything is, and so its frozen, and if it stays frozen, people may decide that they may accept communism or something by another name, till they can fix it… (but they are the ones breaking it!)
going to be a bumpy ride at best
u make too much cents Art
All I can say is invest in your skills…
I’ve been in computers for 20 years.
But I can tile, do woodworking, dig, cook, sew, clean, work on cars….. etc.
I will provide for my family – I worry about people who haven’t put away like I have AND do not have the ability….
Yum
http://www.thesun.co.uk/sol/homepage/news/article2064606.ece
kidding
The NYT is too busy printing phantom letters from foreign dignitaries belittling of all places NY.
http://tinyurl.com/9woshz
It’s another case of fake but accurate
Hi Neo my name is D I have bean reading your blog for awhile and just started my own I would love your advice on how to get more readers. I have always love your post on what Neocons really believe in being one myself I really can not stand the misconceptions
Link- http://neosun.blog.com/
Hi Neo my name is D I have bean reading your blog for awhile and just started my own I would love your advice on how to get more readers. I have always loved your post on what Neocons really believe in being one myself I really can not stand the misconceptions.
Martin Bebow Says: “It is time to thing beyond national boundries.”
Typical left wing world government lover. If we only replace those national boundaries everything will be great…. I have news for you, Europe has been doing thing for a while with Muslims from Africa and the Middle East and now they are facing a Muslim future. The most popular name in Britain for new born baby boys is one of the seven or so variants of “Muhammed”. How do you think thats gonna work out for all concerned? I guess the commies behind the open borders think they can keep the Muslims under control. Morons.
As far as Mexico , thats already happening. Thats why I see those D$@$#@ Mexican flags flying all over my town. They are not leaving their Ethnic Nationalism behind. Of course, the US government has aided and abetted by authorizing the use of the “Matricular consular Card” in US banking. We have 5 million illegal aliens with home mortgages now. The US has allowed almost 50 stationary Mexican Consulates to be built in the US and they allow the Mexican government to send out “mobil consulates” to hand out more cards to Mexico’s colonizers. But the real intent is to overwhelm demographically the US Conservatives who actually believe in National Sovereignty at the voter booth- all en route to a glorious (sarc) World Socialist government run by the UN and the EU.
Smart guys I talk to seem to think it will be deflation followed by re-inflation. I believe in inflation: it is in almost everyone’s immediate interest, though is will be tough on bondholders, pensioners, and the value of cash in hand. Banks, creditors, and the Treasury need inflation. The nightmare scenario is the collapse of aggregate demand.
We are scratching our heads over what to buy.
All I can say is invest in your skills…
I’ve been in computers for 20 years.
But I can tile, do woodworking, dig, cook, sew, clean, work on cars….. etc.
God help us if I ever have to fall back on my skills:
ammunition reloading
marksmanship
brewing
distilling
adobe building
small-unit tactics and drills
bagpiping
Thai boxing
firearm repair
Hey don’t fear. This time we have a backup plan for the problem of people without food in their bellies or shoes on their feet. We’ll get praised by the state for “going green”.
Thats right. Just remind yourself that the worse off you are, the harder you’re working toward our goals.
Gray could be a good friend to have.
This is a word you don’t understand neo.
Deflation is a decline in the monetary standard, not lower prices.Deflation is caused when there is a lack of dollar liquidity,or, when the dollar is much too strong and the Federal Reserve fails to meet the demand for dollars.We would have to see gold below $350 an ounce before we experienced such an outcome, and we did have that before, from 1996 to 2002.Where is gold today?? Over $800.
The results of an inflation end of being the same as as a deflation, but the causes are very different, and the solutions are a mirror of each other.
Gray,
I love you man ! 🙂
The money quote:
The money quote:
Holiday treats from today’s WSJ:
Robert Lucas on the Fed v. The Liquidity Trap
http://online.wsj.com/article/SB122999959052129273.html
John O’Sullivan on Sarah Palin and the young Maggie Thatcher!
http://online.wsj.com/article/SB122999917373529125.html