Hyperinflation Or Deflation? The Answer I Give Now
Will housing bargains last? Or will prices keep falling?
==================================



Good explanation.
What we are seeing at the moment is rising inflation (far from hyperinflation) combined with a credit crunch.

Certain items financed by easy money (like homes) that already inflated to excessive bubble-like levels, are now being discounted because the easy money is not there any longer to sustain the high prices. There are two main possibilities:

+ The bubble-like prices will deflate until they become affordable again in a time of not-easy money. They could even fall to an "excess" on the downside if the credit crunch intensifies, and 65-70% loans (a more traditional lending percentage) are not even available.

+ The governement could panic, and try to stop the price fall by making credit easier and easier. (I am not sure how: buying properties, and buying new securitised junk, perhaps?) and then we may head into real hyperinflation, where even house prices start rising again.

I can see no reason the bet on number 2 above (yet). But we need to stay alert.

If we are headed into number 2, then other assets (like gold and energy) will rise into bubble-like valuations well before house prices take off again. And if we are in number 1, then Central bank efforts to maintain confidence as house price slide may keep gold up.

Oil prices may be set to fall IMHO, because the pain felt by America is spreading globally. Oil price subsidies are being removed, and we are beginning to see global oil demand destruction (not just demand destruction in the US) - which is exactly what is needed to bring oil prices down.

A fall in oil prices would allow governments to back-off on their interest-raising policies (and rhetoric), which could mean that gold will start to push up again.

I think there is a case to be made for the Government to step in and buy up some properties, instead of going down the path of new building for social housing. There was a need for this before the present crisis began, but that need is exacerbated by possible bankruptcy of BTL landlords as well as the forecast number of other repossessions.

Some action along these lines would not necessarily be inflationary - it may be what is needed to prevent a full blown recession/depression, although I would be the first to admit that the present state of the public finances does not give the Government much leeway.



A fall in oil prices would be welcome, but I'm not sure this is going to happen. There is some evidence of motorists travelling less but when you consider that the need for oil is so ubiquitous - agriculture, petrochemicals, plastics etc - I don't think we are going to see global demand destruction without a lot of pain. And besides, there's the minor problem of supply . .

I thionk you will find that demand destruction has altready begun.

In fact, PERMANENT DEMAND DESTRUCTION is being practiced by those who flee the Stranded Suburbs
for a life in the City - and a shorter commute.

Surely people flee the cities and go and live near food sources and away from the government?

It's what happened in all the other empire collapses......

Demand destruction has certainly begun in the USA and other Western countries (with more to come, especially from airlines) as well as in Third World countries. However, if Asian economic growth continues at a fast pace may that not make up for the demand destruction, leading to maintained overall demand?

At the end of the day consumption will always equal production, so supply is the ultimate determinant.

A real slowing in Asia might have to occur before the oil price stabilizes or maybe drops a bit (of course, a short-term correction seems likely, but I'm thinking more of 6 months and more).

That's not what cgnao says on his site (Green something or other).

Although we've had our differences, I think it's nice that cgnao has now got his own site. Should keep him busy.


I don't commute at all, isn't that another option?

It's DrBubbs site.


Me too, although I do live in the burbs. Still seeing A LOT of urban flight here, the town I live in is full of couples who have recently had kids and moved out from London. DrBubbs comments about people fleeing the "stranded suburbs" may be true one day, but I don't believe it'll be the case anytime soon.

Ultimately I think it comes down to one thing, what will happen in a world without banking debt securitization.
No doubt the world has become reliant on it over the past decade from the now vastly overstretched borrowers in the West to the manufacturers in the East who have profited and built on Western consumption.
Without it I think everything points towards deflation but who knows what tricks the FED might have up their sleeve.
What is still outstanding from the current binge and how will it be dealt with, or can it be dealt with without a systematic collapse ... no one knows.

The other wildcard that worries me is the Isreal/Iran situation ... regardless of the banking situation this could be devastating on many fronts.

In short Dr Bubb I would hope for a peaceful deflationary outcome but I'm starting to have my doubts.

They will flock to the cities so long as they can get food and JOBS there.
The idea is : to cut the commuting time and costs to get to the job.

The poor may wind up housed in the suburbs, because it will be cheaper to put them there.
And they will stay out of sight.



China, Malaysia, and Indonesia have all cut fuel subsidies in recent weeks,
and that will help force up oil prices in those countries - send a message to oil users
in those countries that they should help restrain demand growth

Sure: supply and demand will balance. But if supply is not forthcoming, then prices will
rise until they choke off demand. Governments need to start managing demand destruction,
especially in the US

Ah sorry. Easy mistake to make.