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The Great Inflation Versus Deflation Debate Kicks Off On Fsn

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In the whole of the 20th century there were only 2 or 3 years when prices fell and these were during the demand-led slump of the Great Depression.....

In the latter half of the 19th century prices fell relentlessly with improved productivity and incomes remained more or less the same.........

which begs the question, what is wrong with deflation.....?

the old chestnut that people would defer their spending in anticipation of lower prices is hogwash...as food and clothing or anything else dropping only 1 or 2 or 3% per annum in price would not affect consumption patterns..............

the exception is new-fangled electrical devices whose prices can fall dramatically after they first appear....

Edited by Michael

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I couldnt see the report but I assume its similar as to what I have seen and I will assume he has some strong fundermentals for a Japan style deflation

I will guess his points are rising unemployment frozen bank lending supply/demand people saving and these facts mean one thing deflation all true and reading the persons creds on the EWI who am I to say hes mistaken now?

We are now in INFATION DOUBLE DIDGIT YOY deflation ended six months ago

Lets state facts UK house prices up from 147 to 160k in 6 months that going to 20% yoy HPI

Oil up from 33 to about $70 triple didgit inflation

These two things are core drivers of inflation and are facts

Why has the stockmarkets risen so much the answer is inflation

I will assume Mr Preacher fails to consider these words from the powers that be WE WILL DO WHATEVER IT TAKES words from bankers and government mean nothing but actions must be and they have followed through big time to create inflation

Deflation is fine if you are not in too much debt but the west is riddled with debt and thats why the west needs inflation and will continue to do whatever it takes print borrow and spend and have created inflation now and will stoke inflation as much as possible

The sh1t will hit the fan then deflation will be back big time or hyperinflation but for now stagflation is happening

We are now in quicksand financial markets be ready to move quick but for now is inflation

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Not too much to debate really.

We are clearly in deflation and it will continue for many years.

Expect many to be confused, expect inflation and lose most of their wealth.

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In the whole of the 20th century there were only 2 or 3 years when prices fell and these were during the demand-led slump of the Great Depression.....

In the latter half of the 19th century prices fell relentlessly with improved productivity and incomes remained more or less the same.........

which begs the question, what is wrong with deflation.....?

the old chestnut that people would defer their spending in anticipation of lower prices is hogwash...as food and clothing or anything else dropping only 1 or 2 or 3% per annum in price would not affect consumption patterns..............

the exception is new-fangled electrical devices whose prices can fall dramatically after they first appear....

Hi Michael,

The difference between the late 19th century and today is that, during the victorian deflation, resources were abundant - seemingly limitless (a portion of the world remained unexplored at the time) - whereas money (being based upon precious metals) was scarce.

Today, we see the reverse with the growing acknowledgement that resources are becoming increasingly scarce, while money - being based upon government fiat - is essentially limitless.

When we attempt to replace the word 'money' with 'value' we begin to see the difficulties which face economies today. The victorian deflation represented a time of increasing added value (resource availability) during monetary stasis. Today, we face value destruction in a time of (artificial) monetary expansion. This artificial expansion being, itself, an emergency response to the market-led contraction (credit crunch).

Biflation?

Indeflation?

Compartflation?

Disinflation?

Edited by The McGlashan

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I do wish people would stop mistaking deflation with falling prices in these kind of debates.

Deflation = reduction in the total amount of money and credit.

indeed. house prices may have risen over the past few months but sales are at 35,000 per month vs 120,000 a month in normal times.

mortgage lending is still scraping the bottom of the barrel.

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2 years ago I was in the deflation camp, 1 year ago I was in the deflation camp. Today I'm in the deflation camp.

We have the most powerful deflationary forces in centuries. The powers that be have shown they aren't willing to do what it takes to get us out of deflation. For to get us out of deflation would require radically altering our society and upending some of the class system.

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2 years ago I was in the deflation camp, 1 year ago I was in the deflation camp. Today I'm in the deflation camp.

We have the most powerful deflationary forces in centuries. The powers that be have shown they aren't willing to do what it takes to get us out of deflation. For to get us out of deflation would require radically altering our society and upending some of the class system.

I am in the Biflation camp. No way are china going to sit back whiLst their reserves are diluted away by the Yanks.

I expect to see inflationary forces in consumables, deflation in asset values over the long term

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I am in the Biflation camp. No way are china going to sit back whiLst their reserves are diluted away by the Yanks.

I expect to see inflationary forces in consumables, deflation in asset values over the long term

The Chinese have been buying up incredible amounts of resources around the world with their reserves. The smartest thing to do imo.

I think asset prices will have to adjust massively downwards too. I think its reasonable that some consumables could rise in price as they are almost too cheap right now.

If you look at asset prices there already has been a large adjustment downwards as well. Stocks down what 40% in 2 years, commercial real estate down nearly as much probably, and houses down 12% over the last year. Even 12% in just one year is a huge drop. Especially when factoring in the historic drop in interest rates.

So the monthly payments on a new house have to be way down.

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I do wish people would stop mistaking deflation with falling prices in these kind of debates.

Deflation = reduction in the total amount of money and credit.

I am not an economy expert etc but this meaning of deflation looks good to me and would I be fair to say the result of this will mean falling prices etc

Lets accept this quote as fact and the CPI or RPI is a lagging indicater of the total amount of money and credit position

I will assume Inflation = increase of the total amount of money and credit

I assume in 2007 before the problems started their was x amount of money and since that date governments have been printing borrowing money all over the show and I think their is more core money in the system now then in 2007 indicating the first part is in the inflation camp

Credit has clearly fall off a cliff but in my point the governments has put a fire under the banks and savers to address this deflationary problem x $trn to banks to get credit flowwing next to nil for savers etc and only the other day HSBC bank offering 1.99% mortgages I accept the fine print isnt as good as the headlines but still 3.89% for a 90% LTV mortgage is as good as I have ever seen

Credit is still below the 2007 but things like the HSBC deal and other banks likely to follow coupled with higher house prices etc indicates good grounds for the credit side of the equation to be improving

Nothing in life is certain and things can shift quick and I am sure some big problems will surface in time but for me money and credit looks on the up yes from a low base

Lets consider Zimbabwie forgive my spelling but thats what I call inflation I assume credit will be non existant in that country and it has almost full unemployment but the increase of money is skyrocketing but the governments are printing it a lot and giving it away for new cars tax cuts government jobs etc the BOE has just started another £50bn print on top of £125bn and with the fractional banking system that could explode several fold

At the moment I am in the inflation camp as the governments continue doing whater ever it takes however when these measures start being removed or interest rates start going up and taxes etc I will shift my stance quick to deflation or hperinflation both are possible but at this point who knows?

Just for info currently an average house is about 160K it would not suprise me if that number is less than 50k in several years subject to high interest rates high unemployment etc also it wouldnt suprise me is that an average house price to be in the millions if the GBP collapses on the FX and printing continues

The best anyone can do is keep an open mind and move as one see fit

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looking forward to hearing that one!

Max Keiser's latest has some interesting things to say on the same subject in his latest 'Truth about Markets' -

http://maxkeiser.com/2009/09/02/1056-the-t...-foods-boycott/

don't be fooled by the title, which only gets a brief mention towards the end, in true Keiser randon style -

from about 1/3 of the way through he compares returns in 2008 and 2009, between Peter Schiff and Mish

(Schiff being the Inflation proponent, and Mish the Deflationist)

some interesting numbers

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I couldnt see the report but I assume its similar as to what I have seen and I will assume he has some strong fundermentals for a Japan style deflation

Sorry, I phrased it incorrectly. It's in the 3rd hour, part 1. The mp3 link is here:

http://www.netcastdaily.com/broadcast/fsn2009-0905-3a.mp3

Other links, including windows media, rela player and winamp are on the site (or just change the extension on the above link to .ram, .m3u or .asx).

I didn't mean to spark an inflation/delation debate - it's just that Prechter is a good listen and Pulava sticks it to him slightly more than he normally would. I expect the inflation debate to be as good next week...

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I am in the deflation camp for now simply because there is real earned money out there but it is not being spent or being transferred...money is not changing hands, so taxes are not being collected, taking risks is not worth the risk, uncertainty is abound....for now it is a watch and waiting game. ;)

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