Thursday, Apr 09, 2009
Deflation here and now
Mish via Market Oracle: Rampant Signs of Economic Deflation as Consumer Spending Contracts
Nice article reporting on art sales falling, empty seats at restuarants, boats too costly to keep littering coastlines, and shoppers looking for lower-cost own-brand products. Forget Peak Oil this is Peak Credit and Peak Earnings.
Posted by mountain goat @ 11:42 PM (520 views) Add Comment
6 Comments
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1. japanese uncle said...
To be perfectly honest, I think this should inevitably the case with the UK economy. Money released by the stupid QE goes straight into the pocket of bankers and other fat cats, and never benefit the millions of working, thus consuming population. But for the moment, I am screaming 'What a horrific inflation we are seeing now! Do something about it!' to make the case for IR boost.
Massive shift of wealth from those non-consuming stinking riches to those keen to spend but without a penny, is the only solution to recover the economy, to ultimately benefit even the wealthy. But the short-sighted and narrow-minded who control the money and economy will never see this. They instead may well resort to wars as final solution.
2. mountain goat said...
JU - with respect to wealth transfer. I read an article yesterday about the Weimar Republic hyper-inflation, how it wiped out the wealth of the German middle classes. I think this class of people would do better in a deflation but I suppose it depends if they are net savers or borrowers at this moment.
3. japanese uncle said...
MG
I agree. Hyper inflation will drive a wedge between savers and borrowers. But in the 21st century UK, unlike 1930's Germany, money can freely move crossing borders. If there is a symptom of the Hyper-I, there will be a ginormous exodus of money from the UK to other markets, which will cause incredible shortage of money here, leading to the severest deflation known in history, I guess. (I do not doubt for a nano second that the UK authorities should never impose any form of restriction on the free flow of money, as they have been so boastful for so long about their Prometheusian contribution to the free market principle as the standard bearer of democracy.)
4. general congreve said...
It's not so much inflation as a direct result of QE that I think we'll have to worry about, although it will surely come. The big problem will be further devaluation of sterling, it may come quickly, it may creep in, but I'm pretty sure it's going down, down, down. That is what is going to hit people, especially savers, hard in the pocket. No more cheap foreign holidays, no more fancy foreign imported foods down the supermarket, higher prices on everything and the value of savings ravaged. Look at Iceland.
@1. JU, you sound like you work for Crash Gordon mate. So, savers should be giving all their hard-earned, responsibly saved cash to all the irresponsible idiots who helped get us into this mess by overleveraging themselves with debt. A short-term fix with an even worse medium to long term outcome. Unfortunately that is the path Gordon has chosen. After all, there's an election to win, the mess that results afterwards can wait, as long as he's still in charge.
Gordon or Gold?
5. japanese uncle said...
GC
Which on earth of my sentences could possibly be interpreted as supporting CG?
6. mountain goat said...
GC - IMO if we get high inflaton the best thing to have is debts, i.e. buy a house with a big mortgage now. Inflation eats away the size of the debt you owe. As I understand it JU is saying that high inflation will be met with a capital flight from the UK which will stop things going into hyper-inflation and instead we get deflation. JU point was that CrashG has this self view of being a champion of globalisation so won't try stop this movement of money.
As for gold/silver I own it mainly as a hedge against currency crisis, not high inflation (in which debt is better) or deflation (when the price of gold will probably fall slowly). Yesterday's gold article mentioned how there has been a huge selling of scrap gold jewelry in 2009 which has put a ceiling on gold prices. In fact there was a high profile ad during the SuperBowl with MC Hammer the rapper selling his gold as a spoof. Someone mentioned that adverts to sell your gold jewelry were a "shoe-shine boy" moment to sell gold. Well in the 1930's shoe-shine boy was advocating buying shares not selling. Whereas now we have gangsta rappers and 3rd world poor selling their gold jewelry to shrewd businessmen to be converted into bars and coins for wealthy investors. Hardly the same. IMO this is another example of where the little guy gets screwed again. In fact if the masses are selling their gold then we should be buying.