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"we Are Certainly In A Deflationary State"

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Fueled by overcapacity, shrinking credit, reduced corporate spending and falling consumer demand, Deflation is taking root in global economies.

Consumer prices fell at their fastest clip ever last month in Japan, which has been fighting a losing war against deflation for much of the past two decades. Germany, Europe's biggest economy, has now suffered through four consecutive months of sliding prices, and the rest of the region that uses the euro is not faring much better.

That deflation should be such a threat may run counter to market fears that inflation will quickly follow the massive, and costly, global effort to fight the financial crisis. But many observers see deflation as the greater threat.

We are certainly in a deflationary state,” said David Rosenberg, chief economist and strategist with Gluskin Sheff and Associates in Toronto. “Of that, there's no doubt. I think people still have no clue as to just how weak the economy is,” Mr. Rosenberg said.

Remove the “impressive medication” administered by governments, and most economies are at a virtual standstill.The U.S. economy faces a decade of stagnation, he said. “That's a perfectly plausible scenario.”

If and when it does hit, “deflation will last until we see the next secular trend of expanding household balance sheets, and that is some time away,” Mr. Rosenberg said.

I concur with Rosenberg except on his apparent definition of deflation. He seems focused on prices which is only one of many symptoms of deflation.

One confusing aspect in the article is that on one hand he says “We are certainly in a deflationary state” on the other he says If and when it does hit...

There is no if.

The odds that deflation hits are 100% given that we are in deflation now and have been for some time. Moreover, a "decade of stagnation" with the US hopping in and out of recession/deflation is not just a possibility but rather a likelihood.

From a practical standpoint, the debate about deflation should be over. On December 11, 2008 in Humpty Dumpty On Inflation I listed a perfect scorecard of 16 items one would expect to see in deflation and all were happening.

The only debate comes from those using impractical measures of inflation and deflation. As a prime example, please consider Daniel Amerman vs. Mish: Reflections on the Great Inflation/Deflation Debate.

Moreover, it should have been clear we were in deflation as early as March 17, 2008. Three factors made it clear: a collapse in treasury yields, a collapse in asset prices, a collapse in credit marked to market. See Now Presenting: Deflation! for additional details.

http://globaleconomicanalysis.blogspot.com/2009/10/rosenberg-we-are-certainly-in.html

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i dont know where you guys live. i see nothing coming down. only yeasterday in the pub, up goes the price. up go car prices. house prices for all the talk are not coming down. farm land is up. rents are stabalizing and going up in some cases. i would dearly love deflation i really would. but im sorry i do not see it.

as for japan, obviously prices are falling, the currency had doubled in value so import prices are down. thats not deflation, thats just a strong currency having its effect.

please roll on deflation, but i do not see it.

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i dont know where you guys live. i see nothing coming down. only yeasterday in the pub, up goes the price. up go car prices. house prices for all the talk are not coming down. farm land is up. rents are stabalizing and going up in some cases. i would dearly love deflation i really would. but im sorry i do not see it.

as for japan, obviously prices are falling, the currency had doubled in value so import prices are down. thats not deflation, thats just a strong currency having its effect.

please roll on deflation, but i do not see it.

Your currency is crashing. Still less of it going to be less of it floating about though.

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Guest Steve Cook

Your currency is crashing. Still less of it going to be less of it floating about though.

Currency crashing is the functional equivalent of currency inflation. It doesn't matter whether that inflation comes from the demand or the supply side. The effect is the same, at least at the macro economic level. Sure enough, I agree that for the average punter who lives in this country, there will be fewer pounds floating about. However, this will be cold comfort as they see the price of everything rising due to macro-level inflation of sterling causing all of it to chase stocks and commodities.

Indeed, I would argue that much of the recent rally in stocks is down to the reduced yields on bonds becasue so many of them being bought up by the BOE.

Is this what they call biflation?

Edited by Steve Cook

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cuurecny crashing is the functional equivalent of inflation. It doesn;t matter whter that inflation comes from the demand or the supply side, the effect is the same, at least at the macro economic level. Sur eneough, i agree that for the average punter who lives in this country, there will be fewer pounds floating about. however, this will be cold comfort as they see the price of everything rising due to macro level inflation of sterling due to all of thenew funny money chasing stocks and commodities.

Is this what they call biflation?

Is it?

Dictionary definition says a persistent, substantial rise in the general level of prices related to an increase in the volume of money

Money measurements are inpercetably the same in aggregate. Owners of said quantity are changing. If the new owners are hoarding it might as well not exist.

Edited by Alan B'Stard MP

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Guest Steve Cook

Is it?

Dictionary definition says a persistent, substantial rise in the general level of prices related to an increase in the volume of money

Money measurements are inpercetably the same in aggregate. Owners of said quantity are changing. If the new owners are hoarding it might as well not exist.

That's the thing, though, AB

I wonder if a lot of this QE'd money is responsible for the stock and commodity price rises due to bond yields being crappy at the moment (due to QE). This makes stocks and commodities look less unnatractive. Hence the rally.

So, we have a situation where there is less money around for the average citizen whilst at the same time, all of the extra money that has been created is having an upwards effect on stock and commody prices. In turn, feeding through to rising prices in the shops.

I don't know what the technical term for such a situation is or even of there is a term to describe it.

Edited by Steve Cook

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Guest Steve Cook

Deflation?

:lol::lol::lol::lol:

yes yes injin...hardi ha ha

Whilst what I have described is indeed inflationary in terms of the overall money supply and it's effect on prices, it is unusual in that none of this money is coming down to the averge consumer in the street.

Do you know of any other historical example of an inflationary policy that has panned out in this way?

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I don't know what the technical term for such a situation is or even of there is a term to describe it.

No I don't think there is. The term Inflation is a anachronism for today's dual currency monetary system.

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yes yes injin...hardi ha ha

Whilst what I have described is indeed inflationary in terms of the overall money supply and it's effect on prices, it is unusual in that none of this money is coming down to the averge consumer in the street.

Do you know of any other historical example of an inflationary policy that has panned out in this way?

Just remind him that cookies are down from $6.09 to $4.99 after he pontificated something largely different.

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yes yes injin...hardi ha ha

Whilst what I have described is indeed inflationary in terms of the overall money supply and it's effect on prices, it is unusual in that none of this money is coming down to the averge consumer in the street.

Do you know of any other historical example of an inflationary policy that has panned out in this way?

They all work that way - at first.

Everyone has to become ultra competitive to meet the new higher input costs and to bid for assets against the purchaes of the money issuer. Theres a reason price rises lag inflation by months.

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Just remind him that cookies are down from $6.09 to $4.99 after he pontificated something largely different.

Linky?

Or retraction and apology.

Ta.

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snip

Is this what they call biflation?

no, its just a symptom of the BUST.....a BUST they want and think theyve avoided. its not something that CAN be avoided Im afraid.

in monetary terms, they can try and HIDE the BUST, but doing that leads to currency devaluation, and the BUST effect returns a little later.

The BUST will end when waste is reduced, bail outs are halted and balance is restored.

I mean, the average wage is 25K, how many people does it take to support the 10,000's earning over double that in the public sectors, not even including the pyramids of "support" these people represent. the BUST will reduce these peoples differential till either the poorer catch up or the waste is culled.

In a BUST, it is normal for low order items to rise in price, and high order to fall. Its not Biflation as inflation is really the measure of money in the system vs the value in the system. the reason its normal is that the boom will have caused high order items to rise due to finance, so as the finance and waste is lost, so the prices fall in the BUST.

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no, its just a symptom of the BUST.....a BUST they want and think theyve avoided. its not something that CAN be avoided Im afraid.

in monetary terms, they can try and HIDE the BUST, but doing that leads to currency devaluation, and the BUST effect returns a little later.

The BUST will end when waste is reduced, bail outs are halted and balance is restored.

I mean, the average wage is 25K, how many people does it take to support the 10,000's earning over double that in the public sectors, not even including the pyramids of "support" these people represent. the BUST will reduce these peoples differential till either the poorer catch up or the waste is culled.

In a BUST, it is normal for low order items to rise in price, and high order to fall. Its not Biflation as inflation is really the measure of money in the system vs the value in the system. the reason its normal is that the boom will have caused high order items to rise due to finance, so as the finance and waste is lost, so the prices fall in the BUST.

Yep.

If they hadn't added any money it would have just seen some prices rise (normal every day stuff like food and wages probably) and some prices fall (houses.)

Instead houses are being propped up by money printing. Which means that the correction is more severe, comes later, is more wasteful and is inflationary.

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Excuse my ignorance but is there not various types of inflation?

Surely the one with overwhelming importance is wage inflation. Twin that with higher taxes and the majority have less hard earned to spread about generally.

That means they are less likely to put their discretionary spend towards the frivolous items that they have been buying for 10 years. Add commodity inflation and you've got a perfect sh1t storm.

Even if food and fuel stay constant or drop a bit, without wage inflation the system is screwed.

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Could somebody point me in the direction of something that is going down in price?

Thought not...................move along please nothing to see here.

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Excuse my ignorance but is there not various types of inflation?

Surely the one with overwhelming importance is wage inflation. Twin that with higher taxes and the majority have less hard earned to spread about generally.

That means they are less likely to put their discretionary spend towards the frivolous items that they have been buying for 10 years. Add

commodity inflation and you've got a perfect sh1t storm.

Even if food and fuel stay constant or drop a bit, without wage inflation the system is screwed.

thats what it looks like. Prices and wages are also determined by supply and demand, as well as money supply and money value.

however, inflation or deflation in the value of money is only caused by supply and demand, ie if there is £1bn in money incirculation and £1bn in wealth ( things) that the money can buy, there can be no inflation. however, if money in circulation say doubles to £2bn and things remain the same, then clearly it will in general mean that things will cost twice as much...nothing has changed in reality except the supply of money.

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Guest Steve Cook

Excuse my ignorance but is there not various types of inflation?

Surely the one with overwhelming importance is wage inflation. Twin that with higher taxes and the majority have less hard earned to spread about generally.

That means they are less likely to put their discretionary spend towards the frivolous items that they have been buying for 10 years. Add commodity inflation and you've got a perfect sh1t storm.

Even if food and fuel stay constant or drop a bit, without wage inflation the system is screwed.

Inflation is a technical term and refers to the inflation of the money supply.

Money is not exempt from the principles of supply demand any more than any other thing that is traded in the world. If the supply of something goes up without a commensurate increase in demand for it, its value will fall. Meaning, less will have to be exchanged for it.

In termsof money, this means that if the supply is increased without a commensurate increase in demand for it, then less goods and services will need to be exchanged for it. This will have the effect, that for every good and/or service you now seek to recieve in exchange for your money, you will have to offer more money for the same amount of good/service.

Inflation of the money supply, all other things being equal, leads to nominal price rises in good and services

It does not rain becase the ground gets wet. The causal arrow runs in the opposite direction.

Price rises are not a cause of inflation. They are a consequence of it.

Edited by Steve Cook

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Inflation is a technical term and refers to the inflation of the money supply.

Money is not excemt from the principles of supply demand any more than any other thing that is traded in the world. If the supply of something goes up without a commensurate increase in demand for it, its value will fall. Meaning, less will have to be exchanged for it.

In temrsof meny, this means that if the supply is increased without a commensurate increase in demand for it, then less goods and services will need to be excvhanged for it. This will have the effect, that for every good and/or services you now seek to recieve in exchange for your money, you will have to offer more money for the same amount of good/service.

Inflation of the money supply, all other things being equal, leads to nominal price rises in good and services

It does not rain becase the ground gets wet. The causal arrow runs in the opposite direction.

Price rises are not inflation. They are a consequence of it.

Whatever the definition, the money supply has been contracting steadily, despite the pumping out of rescue plans. The reason is we have a debt based money system, and the amount of debt being issued by the banks is contracting.

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Whatever the definition, the money supply has been contracting steadily, despite the pumping out of rescue plans. The reason is we have a debt based money system, and the amount of debt being issued by the banks is contracting.

There hasn't been any contraction.

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Could somebody point me in the direction of something that is going down in price?

Thought not...................move along please nothing to see here.

GBP is going down in price for my aussie dollars ;)

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Guest Steve Cook

Whatever the definition, the money supply has been contracting steadily, despite the pumping out of rescue plans. The reason is we have a debt based money system, and the amount of debt being issued by the banks is contracting.

If we include credit alongside legal tender as both being defined as money, then yes, the extinction of debt via default/repayment/lowered level of borrowings means that whatever the level of debt that has been monetised is currently being beaten by the defaults. So, the net effect is deflationary. Though, to be honest, I am not sure about this because I don’t know the exact supply numbers.

However, even if we hold the total money supply constant or even if it falls slightly overall as a result of the above processes, this may still be relatively inflationary in that there is a reason that debt defaults occur. It is because there is less of a living to be made and so people default. This means that there is significantly less economic activity going on. Lowered economic activity requires a lowered money supply. If the supply even remains constant in an environment that does not need it, the net effect will be an inflation of the money supply.

Relative inflation is driven by both supply and demand.

The debt should default. It is the system self-regulating in order to bring the money supply down and back into equilibrium with the economic requirement for it. Simply holding that supply constant under such circumstances is relatively inflationary, never mind increasing it.

Edited by Steve Cook

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