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Well Where Are We In The Inflation Vs Deflation Debate Now?

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In the run up to the spurt in commodities I started a load of threads about farming, how producers were getting knackered by costs and the squeeze on prices achieved. Milk production (primarily UK articles at the time was a particular area where there was trouble brewing).

A couple of years later the system snapped back, production had been lowered, producers taken out of the loop and in combination with lax monetary policy there was a huge increase in consumer prices for food across the board. Who knows how much was to do with shenanigans in the commodities market, but it happened. It is also apparent the commodities market can swing both ways into overshoot and massive undershoot.

I think in a super inflated and super manipulated economic environment we are likely to see continuation of bouts of rapid inflation and deflation (in terms of pricing of goods/assets) whist the monetary authorities continue to pump real inflation into the market - at some point I think the inflation created will drown the consumer and deliver a knockout blow. These insane wings are great for trades and speculators and diabolical for producers and investors - it will likely lead to refusal to make long term plans - hence refusal to take on credit to invest at the moment it is just too unreliable in terms of returns, the monetary authorities are not injecting money into the system they are injecting risk and instability.

http://globaleconomicanalysis.blogspot.com...illed-milk.html

Don't Cry Over Spilled Milk

Dairy farmers, stung by a price-depressing glut of milk, are pressing federal antitrust regulators to investigate competition in the industry.

A group of dairy farmers is slated to meet with antitrust enforcers Thursday in Washington, and Christine Varney, chief of the Justice Department's antitrust division, is scheduled to appear Saturday at a Vermont hearing of the Senate Judiciary Committee, which is populated with several Democrats from big dairy states such as Wisconsin, Minnesota and New York.

The price of milk began a historic run-up in 2007, and dairy farmers raced to cash in by expanding their herds. Then, the global recession doused foreign demand for milk in 2008, contributed to an oversupply.

In the past year the price farmers get for their milk has dropped 36%, to the lowest level in three decades.

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It's inflation. That's what the folks who control the quantity of money want, that's what they'll get.

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It's inflation. That's what the folks who control the quantity of money want, that's what they'll get.

That's what they want, but there are limits, both to the amount of debt growth and resultant inflation that can be handled by the consumer. We could be continually hitting the buffers of BOTH over the next few years as the spinning wheels create smoke and heat rather than any form of traction. If the consumer is tapped out, is seeing real terms falls in their salary, has already removed from their budget unaffordable items (like PENSIONS!) they have nothing left ot cut back on other than everyday consumption and debt obligations that will further denude their cash balances.

http://www.nakedcapitalism.com/2009/09/wil...-recession.html

Thursday, September 17, 2009

Will Peak Oil Pricing = Perma Recession?

Last year when oil was skyrocketing, peak oil talk was all the rage. Now you hear nary a peep save from the diehards. But commodity prices are grinding upward, in the face of rather sizable inventories.

Jim Hamilton also suggested a connection that has been generally overlooked, namely, that it was the oil/commodities price spike that put the dent in consumer budgets that kicked off serious deleveraging. I am not sure I buy that thesis, the deeper I drill into the crisis, the more I am convinced that the borrowing had hit the self-limiting point. Subprime defaults were rising in an economic expansion, an unheard-of phenomenon. So while the commodity price rise might have acted as an accelerant to the deleveraging, the debt bubble was destined to collapse under its own weight.

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It's inflation, doesn't really matter if people are willing to borrow or not, expansion of the money supply is the very definition of inflation. I daresay some things might fall in price for a while at some point but generally speaking we are going to see higher prices on most of the stuff people buy regularly. If confidence in the currency takes too big a hit this will spill into hyperinflationary collapse but I do not see this as 100% certain, simply quite likely.

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It's inflation. That's what the folks who control the quantity of money want, that's what they'll get.

2 years of "pump priming" and almost all markets are way down on 2007, inflation is here nor there, certainly not the 70s.

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Well where are we in the inflation vs deflation debate now?
the poster ?....! might know. :lol:

Never a truer word...

Inflation is cost and cost is demand imbalance; demand for finished goods or inputs is income and equity and where these broadly rise prices follow.

All trade is bilateral and yield is the cost of that which is monetised. Where demand imbalance is in demand for money (rather than finished goods or inputs) yields rise instead.

Which economies have rising incomes and rising equity?

Which economies have rising monetary demand?

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Barclays just created 12.6bn in new money buy loaning to itself to sell off Toxic assets.

This is not just moral hazard...its dangerous moral hazard.

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So what about the HPC?

Inflation scenario 1 - loads of cash strapped, newly unemployed, neg equitied homeowners can't afford to eat / clothe kids / pay for desperately needed medical treatment etc and will be forced to sell = lower house prices so some of us can buy a home at last?

OR inflation scenario 2 - govt bails struggling homeowners via QE (lots of spurious public sector jobs and mortgage relief) forever and ever and house prices rise / stay same?

OR inflation scenario 3 - cash strapped, newly unemployed, neg equitied homeowners can't afford to eat / clothe kids / pay for desperately needed medical treatment etc and will be forced to sell = lower house prices but house prices stay the same and savers lose all their savings (my bull friends put this scenario forward regularly at the mo)

OR

Deflation scenario 1 - house prices drop

Deflation scenario 2 - er, house prices drop

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Barclays just created 12.6bn in new money buy loaning to itself to sell off Toxic assets.

It also created £12.6bn in new debt.

More significantly, it's negotiated a floor under the maximum possible deleveraging effect of the associated securities on its balance sheet - a floor the market was notably unwilling to provide at the price they've supposedly achieved.

This is not just moral hazard...its dangerous moral hazard.

I suspect you're correct (it's an M&S moral hazard?).

Drywall was never a good choice for foundation.

Edited by ParticleMan

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My position is that inflation and deflation (the 'flations) are two sides of the same debased coin.

Money has been debased at a rate of knots since the end of the second world war.

QE is nothing new, look at any countries increase in money supply and it is the same.

Remember it wasn't called the post war bust.

It shows that it had been doubled by the mid 50's, increased ever upwards by the 70's, exponential till last year, and now it has gone ballistic. That has to debase a currency in my view.

Prices going up and down is nothing to do with the 'flations, that's just the balancing act determined by supply and demand.

Deflation in a debased currency happens when oversupply crashes prices.

Inflation will happen, when capacity to produce gets closer to consumption, and production costs will have to be met in full with a debased currency.

Don't forget that profit margins are in reality a production cost, they have to be met or the goods are not produced.

Currencies going through the floor is just as big a danger at the moment, some would say a greater danger.

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Guest DissipatedYouthIsValuable
Barclays just created 12.6bn in new money buy loaning to itself to sell off Toxic assets.

This is not just moral hazard...its dangerous moral hazard.

"Have you got a degree in economics? No, then shut up."

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"Have you got a degree in economics? No, then shut up."

do you do on-line prescriptions?...I have what I think might be, a cracked rib.

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