D E F L A T I O N More Serious Economists Now See It

[winkie]

Falling income + harder to obtain loans/credit = less money in pocket = less money to spend = prices forced lower = deflation.

inc house prices.

[Tired of Waiting]

The reality is that everyone is debasing their currencies.

A concerted effort to devalue to beat the competition. However this is not a buy signal for gold!

If enough nations do this you end up in a deflationary cycle as goods fall in value due to a reduced ability to import which in turns impacts the exporter. Try to think in terms of physics and counter-actions.

Your "point" is a superficial interpretation of my original point that you need to think through. The point you miss is bolded:

The reality is that everyone is debasing their currencies.

But what I think is slightly less important than the growing consensus that when bubbles deflate deflation occurs. The reality is happening before our eyes and it is good news for those waiting to buy a home to live in at a deflated price.

Sorry RB, but you are mistaken there. If you print more money, you dilute the purchasing power of the money in circulation. This is very basic economics, really. This is not a controversial point. You will not find a single economist in the universe that would disagree with that.

Look, even money can't avoid the law of supply and demand. If you increase the supply of money (*1), and the amount of products and services (P&S) remain constant, the value of that money in relation to P&S will fall. More money chasing the same P&S. That is inflation. The amount of currency has been inflated, consequently prices are also inflated.

Not many things in economics are simple, but in this case it is really quite straightforward.

(*1) Assuming Velocity of circulation (V) remains constant.

[Realistbear]

Inflation or deflation isn't a product of opinion.

It's a check of how much the money supply is either really increasing or really decreasing.

Why are you chucking out such drivel?

If it is drivel the blame lies firmly at the door of the DT who printed it this morning.

IMO its great stuff and shows you what the market is now thinking.

[Minos]

Falling income + harder to obtain loans/credit = less money in pocket = less money to spend = prices forced lower = deflation.

inc house prices.

Some are still sitting on great continents of cash magiced into existence during the biggest heist in history. Just imagine what they can buy with it when you are experiencing your austerity.

[Injin]

If it is drivel the blame lies firmly at the door of the DT who printed it this morning.

IMO its great stuff and shows you what the market is now thinking.

Okay so you agree that we have inflation?

And you agree that inflation is a measure of the money supply and not of peoples opinions about the money supply?

Just checking, please confirm.

Cos if you do - why would you post such drivel?

And if you don't, why have you just posted such drivel?

[Realistbear]

Sorry RB, but you are mistaken there. If you print more money, you dilute the purchasing power of the money in circulation. This is very basic economics, really. This is not a controversial point. You will not find a single economist in the universe that would disagree with that.

Look, even money can't avoid the law of supply and demand. If you increase the supply of money (*1), and the amount of products and services (P&S) remain constant, the value of that money in relation to P&S will fall. More money chasing the same P&S. That is inflation. The amount of currency has been inflated, consequently prices are also inflated.

Not many things in economics are simple, but in this case it is really quite straightforward.

(*1) Assuming Velocity of circulation (V) remains constant.

In days gone by maybe--but printing is causing the US to head into deflation and printing was useless in the Japanese scenario. Too many global checks and balances are in play that have changed the old rules (rules, that is, not laws of supply and demand which are only part of the equation).

It speaks for itself:

http://www.bloomberg...D1PU0asH4&pos=6

Fed Rate Increase Pushed to 2011 as Inflation Ebbs (Update1)

By Shobhana "Showboat" Chandra and Alex "Al" Tanzi

June 9 (Bloomberg) -- Record-low inflation and prolonged unemployment mean the Federal Reserve will hold off raising interest rates until 2011, according to economists surveyed by Bloomberg News.

The central bank’s preferred price gauge will rise 1.1 percent this year, the smallest gain in data going back to 1960, and the jobless rate will average more than 9 percent through next year, the median estimate of 65 economists surveyed from June 2 to June 8 showed.

[Godley]

jees realistbear move on, get over it.

Savers are being screwed end of. If everyone prints up more this doesn't lead to deflation, just means that everyone has put into circulation more paper which is INFLATIONARY.

[campervanman]

22 were polled. Half were for deflation and 3 were clueless. Inflationists have become the minority (and eccentric) view.

So 3 have evolved to reach concsious incompetence. The other 19 remain in the 'stupid and proud of it' club.

Edited June 11, 2010 by campervanman

[Reluctant Heretic]

Flooding the system with cheap money doesn't lead to higher prices if all currencies are flooded at the same time. What it does is ensure that selected asset classes can maintain their "value". The more abstracted those asset classes that are sufficiently disconnected from their base representation, the more they will appear to increase in value because nobody is able to see the connection. The only winners are the ones who operate the rigged system - e.g. derivatives, hedge funds etc.

The outcome may be a hoarding of money by the system and a gradual decline in the value of things like houses. There are actually two economies running in parallel. One which abides by the laws of physics and the other that abides by the law of the printing press. The little people will not be allowed to benefit from the system which abides by the law of the printing press. They will just find that the value of their labour becomes worth less over time as retail banks can up interest rates on mortgages, credit cards and loans in a way that is completely disconnected from the base rate and quantity of money that's been created by the electronic printing presses.

... so ... basically ... we are all still at the mercy of those who hold the reins of the financial markets, they surge forwards in a private gambling games over more and more abstract assets and everyone else - the governments, the consumers and real industry (those that make things) in the real world get left behind. So in a sense deflation and inflation can be happening at the same time - depends on your asset class? (I'm trying to keep up!)

[winkie]

Some are still sitting on great continents of cash magiced into existence during the biggest heist in history. Just imagine what they can buy with it when you are experiencing your austerity.

Why buy something that is losing value...better to keep it in-house for investment for the future.

[Realistbear]

Okay so you agree that we have inflation?

And you agree that inflation is a measure of the money supply and not of peoples opinions about the money supply?

Just checking, please confirm.

Cos if you do - why would you post such drivel?

And if you don't, why have you just posted such drivel?

I do not believe in a static market. You have either inflation or deflation in the real world of shifting supply, demand, credit supply, geopolitical circumstances and so forth. Deflation follows inflation just as inflation follows deflation. It is cyclical and just because we have inflation today does not mean that there cannot be trending toward deflation. Example: there is now deflation in the all-important UK housing market if Acadametrics are right in today's article.

If the trend in the US is maintained they will have deflation before winter sets in.

There is no magic in deflation--it is as real as inflation and just as probable if the economy is cyclical which I think everyone agrees that it is. You can't have a cycle without deflation.

Edited June 11, 2010 by Realistbear

[tomandlu]

Some are still sitting on great continents of cash magiced into existence during the biggest heist in history. Just imagine what they can buy with it when you are experiencing your austerity.

This, I'm afraid, is my conclusion. They printed money, we ain't got it, ergo someone else has... My only consolation is that I think the thieves have seriously underestimated the rage they are stoking...

[Injin]

Why buy something that is losing value...better to keep it in-house for investment for the future.

Does it matter what you buy when money is free to you?

I think theres a bit of an empathy failure on this issue at times - why on earth would the guys with the printing press value the stuff they print up?

Their job is to turn their magic machines output into real stuff asap.

[Injin]

I do not believe in a static market. You have either inflation or deflation in the real world of shifting supply, demand, credit supply, geopolitical circumstances and so forth. Deflation follows inflation just as inflation follows deflation. It is cyclical and just because we have inflation today does not mean that there cannot be trending toward deflation. Example: there is now deflation in the all-important UK housing market if Acadametrics are right in today's article.

If the trend in the US is maintained they will have deflation before winter sets in.

There is no magic in deflation--it is as real as inflation and just as probable if the economy is cyclical which I think everyone agrees that it is. You can't have a cycle without deflation.

Ok, so you know how to talk confusing nonsense that sounds related to what you were asked. That's nice.

Can you answer my questions now?

Edited June 11, 2010 by Injin

[Sour Mash]

Isn't it likely that tvarious VI's just using deflation as a bogeyman to pressure the government into keeping interest rates low and

into printing more money so that they can keep on further enriching themselves on the cheap money gravy train that they've

been having such a great ride on since 2008? I disregard Blanchlower in that statement, I don't think hes a VI, I think he should just be

disregarded in all circumstances.

Apart from that...I see no signs of deflation, current UK situation points to more inflation, and there is so much debt around I can't see

politicians being able to resist the temptation to inflate some of it away.

There's definitely deflationary pressure as the rush of the first lot of monetary policy loosening wears off and the market attempts to purge itself of worthless credit that should never have been created. However, this is just going to be the signal to start another batch of money printing.

After all, clearly we didn't print enough the last time so lets really go to town this time around and lock in the recovery.

We've seen the effects of money printing to support equity markets and prop up the banking system so it's pretty damn obvious that we'll get more of it as the markets crash again and banks once again teeter. The people with first access to the new money will have a ball, the rest of us will have to deal with the resulting inflation as best we can.

[Tired of Waiting]

AA3 - noted QE advocate - I'm in the deflation camp. Overcapacity, rising unemployment, income falling relative to productivity..

Most of all it depends on the actions of national governments around the world. Clearly the budget hawks are gaining the upper hand across the western world.

If a national government is willing to print and spend hard enough it can overcome deflationary forces. But I've always felt national governments would not be willing to do that.

Yes, we have 2 solid facts here, and one big question mark:

Fact 1: inflation x deflation is a political decision, by governments and central governments, and not a consequence of market processes.

Fact 2: All governments, in the whole planet, want the same: some inflation, controlled, between, say 2% and 3% or perhaps 4%.

BIG QUESTION: Can they achieve that though? Can they manage, control the markets, and public, that well?, that precisely?, in the current chaotic international situation?? That is the big problem / question.

Answer? Nobody knows, yet.

But everybody agrees that this will be hard to achieve. Very very hard.

.

Edited June 11, 2010 by Tired of Waiting

[Injin]

There's definitely deflationary pressure as the rush of the first lot of monetary policy loosening wears off and the market attempts to purge itself of worthless credit that should never have been created. However, this is just going to be the signal to start another batch of money printing.

After all, clearly we didn't print enough the last time so lets really go to town this time around and lock in the recovery.

We've seen the effects of money printing to support equity markets and prop up the banking system so it's pretty damn obvious that we'll get more of it as the markets crash again and banks once again teeter. The people with first access to the new money will have a ball, the rest of us will have to deal with the resulting inflation as best we can.

+1

If this was economics it'd be deflation.

It isn't though, it's corrupt apparently democratic politics tat's really run behind the scenes by banksters who need exponential bail outs.

[The Eagle]

BIG QUESTION: Can they achieve that though? Can they manage, control the markets, and public, that well?, that precisely?, in the current chaotic international situation?? That is the big problem / question.

One man's chaos is another man's plan...

[winkie]

Does it matter what you buy when money is free to you?

I think theres a bit of an empathy failure on this issue at times - why on earth would the guys with the printing press value the stuff they print up?

Their job is to turn their magic machines output into real stuff asap.

There has and will always be people/organizations that get their hands on free money.......it's the people like you and I that earn, borrow, spend and spread the money around that fix the price we pay based on what is made available to us.

[Tired of Waiting]

Flooding the system with cheap money doesn't lead to higher prices if all currencies are flooded at the same time.

Sorry Pindar, but it does - in relation to produscts and services, and assets, it does.

We can have global inflation. All currencies can devalue together - not in relation to each other, but in relation to products and services, and assets. Actually we had that in the 70s.

Please see my reply to RB, above.

[Injin]

There has and will always be people/organizations that get their hands on free money.......it's the people like you and I that earn, borrow, spend and spread the money around that fix the price we pay based on what is made available to us.

Well, yeah.

For some reason tho you think that you and me not being able to afford to buy anything because the money supply has been increased enormously and we can't compete is deflationary.

[Realistbear]

Ok, so you know how to talk confusing nonsense that sounds related to what you were asked. That's nice.

Can you answer my questions now?

Your question did not make any sense other than the point about whether I agreed that we have inflation to which I responded, yes we do. I qualified that by suggesting the trend was toward deflation.

You have said that money supply (M3) is not a factor in the equation so I am not sure what you are asking. IMO increasing money supply has not worked due to the size of the debt levels and market constraints.

I have pointed to the US as an example of a country known for money supply expansion that is headed toward deflation. My point is that globalisation and the checks and balances that apply through bond markets and the FOREX curtail sovereign freedom to print as the counteractions nullify the desired result of the printing as Japan discovered and as the US is now discovering.

Unless all nations act in concert (geopolitical impossibility) the cycle wins. We have just had an inflationary cycle in the main market mover (property) and the bubble is still in process of collapsing or deflating.

This really all rudimentary and the OP does say quite a lot about the direction of opinion and a growing consensus that we are headed toward a deflationary period.

[winkie]

Well, yeah.

For some reason tho you think that you and me not being able to afford to buy anything because the money supply has been increased enormously and we can't compete is deflationary.

Well tell me where all this increased money supply is?....it is not being lent out...it is not going on pay rises...it's not being used to create new jobs....whoever has got it is certainly not spending it.

[Injin]

Your question did not make any sense other than the point about whether I agreed that we have inflation to which I responded, yes we do. I qualified that by suggesting the trend was toward deflation.

Ok so we have inflation. Righto.

You have said that money supply (M3) is not a factor in the equation so I am not sure what you are asking. IMO increasing money supply has not worked due to the size of the debt levels and market constraints.

no, i said that M3 isn't actually a measure of the money supply.

I have pointed to the US as an example of a country known for money supply expansion that is headed toward deflation. My point is that globalisation and the checks and balances that apply through bond markets and the FOREX curtail sovereign freedom to print as the counteractions nullify the desired result of the printing as Japan discovered and as the US is now discovering.

Japan never deflated. They filled the world with exported yen, enormously inflationary.

Unless all nations act in concert (geopolitical impossibility) the cycle wins. We have just had an inflationary cycle in the main market mover (property) and the bubble is still in process of collapsing or deflating.

This really all rudimentary and the OP does say quite a lot about the direction of opinion and a growing consensus that we are headed toward a deflationary period.

I agree that if left alone the bubble would have deflated.

Problems with that

1) States and bankers are the biggest debtors around

2) States and bankers own printing presses

Deflationary scenarios rely on the states and bankers not abusing their power to print money and them voluntarily going bankrupt left right and centre like good little boys and girls. There is no chance of that. None.

[Injin]

Well tell me where all this increased money supply is?....it is not being lent out...it is not going on pay rises...it's not being used to create new jobs....whoever has got it is certainly not spending it.

Well, yes.

Exactly.