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Deflation Delusion Continues As Economies Trend Towards High Inflation

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http://www.marketoracle.co.uk/Article22199.html

The Myth of Japanese Economic Depression and Deflation

Deflationists in the mainstream press and BlogosFear constantly perpetuate the myth that Japan has been in a Deflationary depression since the housing and stocks bubble burst in early 1990. One would imagine that the Japanese economy is perhaps 30% smaller with prices 30% cheaper given the repetitive mantra . But what about the facts ? The facts are that the Japanese economy has NOT crashed by 30% i.e. in depression during this time period but grown in virtually every year up until the 2008 global recession to stand at a GDP of some 20% higher than where it was when the bubble burst.

Price Deflation ? - Another myth. Despite the fact that innovation and increases in productivity should drive prices down, Japan's consumer prices have have not fallen but are in fact marginally higher than where they were in early 1990. Therefore what Japan has experienced is stable prices NOT DEFLATION.

Yes Japanese asset prices, namely stocks and real estate have suffered greatly, however this is as a consequence of the bursting of the bubbles that saw prices TRIPLE during the preceding 5 years that turned safe assets such as houses into over bid gambling casino chips that were priced to discount a perpetual never ending boom. Therefore prices fell to reflect reality such as that it was ridiculous for the city of Tokyo in 1990 to be priced to have a greater value then the whole of the United States!

So when you hear about the US following a Japanese style deflationary depression, what you really need to understand is that it is for one of low economic GROWTH with STABLE prices. However the USA is NOT going to follow that model as the USA does not have the demographics of a shrinking ageing Japanese population which really SHOULD result in DEFLATION and a contraction in GDP which Japan through continuous innovation has NOT suffered. If there are far less workers generating MORE economic output then is that really an economic depression?

Commentators have been pointing to Japanese Debt soaring to now stand at 200% of GDP as highly deflationary when the OPPOSITE is true, as when the japanese debt bubble bursts which it surely will, then it will be highly inflationary if not hyper inflationary as Japan is forced to wipe out the value of its debt

Japanese the Real Gold Bugs

Whilst in the west buying gold for wealth preservation has yet to impact on ordinary people to any significant degree, ordinary Japanese recognising their ever growing debt mountain would ultimately destroy the Japanese currency were buying gold nuggets from their local gold dealers in preparation for hyper inflation 5 years ago! Needless to say despite that not having happened to date, the Gold price rising to $1250 reflects the increased global risks of debt bubbles bursting into high inflation.

Bottom Line - There has been no Japanese Deflation or Economic Depression. Western countries such as the UK and the USA are NOT Destined to follow the Japanese experience as their demographics are primed both for greater nominal GDP growth and price inflation.

Delusional Deflationists Point to Treasury Bond Market to Illustrate Deflation

Deflationists point to imminent deflation and a double dip recession by pointing to the treasury bond market yields plunging towards the credit crisis lows whilst at the same time continuing an 18 month mantra of the stocks bear market rally whose end is always imminent with the most recent plethora of commentary concluding that it has ended (again) and the bear market has resumed.

However the facts are that it is bonds and not stocks are in a bull market that is coming to the end of its life and entering the final manic stage that tends to see markets go parabolic. I am sure in recent weeks you have heard at length as to why bond investors are smarter and thus why the bond rally will go on and on, to me that sounds a lot like the tek stock investors during 1999, they too saw themselves as very smart just as the bubble popped. Every bubble participant thinks its different for them than every other bubble that's popped before, however it NEVER IS! The bond market investors are in total denial of the fact that the U.S. is firmly on the path towards bankruptcy because the US has given NO SIGN that it intends on bridging the forecast $200 trillion fiscal gap between future revenues and liabilities, a gap that can ONLY be filled by printing huge amounts of money triggering very high INFLATION, which will DESTROY the real value of bonds as in purchasing power terms they will just become confetti paper. Against this stocks that consistently pay high dividends can be expected to retain much of their purchasing power, where my focus is on dividend paying stocks because it is more difficult to engage in corporate fraud Enron style if a company is actually making dividend payments.

Edited by ringledman

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Walayat seems to be on a personal campaign to ridicule deflationists. To his credit, he has nailed his colours to the mast. I'm slightly suspicious of his stance on house prices though. The sharp rise since last summer made a mockery of his previous predictions, along with most of ours, and he has stalled on producing his latest forecast, claiming ot be too busy. Hmmm... playing for time? He recently promised it would be out by the end of this month so it will be interesting to see how he's revised his conclusions of a couple of years ago (for a 'traditional' sharp fall). Lately his references to UK property have been been more along the lines of inflation erosion. No fun in that.

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Walayat seems to be on a personal campaign to ridicule deflationists. To his credit, he has nailed his colours to the mast. I'm slightly suspicious of his stance on house prices though. The sharp rise since last summer made a mockery of his previous predictions, along with most of ours, and he has stalled on producing his latest forecast, claiming ot be too busy. Hmmm... playing for time? He recently promised it would be out by the end of this month so it will be interesting to see how he's revised his conclusions of a couple of years ago (for a 'traditional' sharp fall). Lately his references to UK property have been been more along the lines of inflation erosion. No fun in that.

Utter rubbish. He is comparing GDP = turnover with Assets = Balance. Assets have been down massively and that points to deflation. Japan GDP has been saved by massive stimulus and an export driven economy. Now what if the US, Europe, UK al need exports to drive their economies. Good luck it will not happen. More stimulus I can't see this happen either.

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Just notice this thread. I have been saying for a while now there is no single instance of deflation since WW2 - wondering if Marketoracle reads HPC also? Further, quoting from a book I am reading now:

If there is excess money, it flows out, as between vats of differing levels of fullness which are interconnected by pipes. More than that, payments deficits were highly beneficial in minimizing the domestic effects of money inflation. Net export of money reduces the price inflation at home and distributes it instead abroad. If America’s payments deficits were successfully blocked and its inflated money shut up at home, America’s price inflation would be worse and foreign inflation less bad. If dollars held by foreigners from the accumulated old deficits should come back to the United States through a surplus of payments, price inflation in the United States would be still further worsened. Precisely this took place in Germany at about the middle of 1922, when Germany’s balance of payments moved into surplus at the same time that its price inflation moved utterly out of control. Payments deficits while they last are in reality no problem at all but quite delightful for the deficit country, allowing it to enjoy a flow of pleasant things like foreign goods and foreign vacations with its constantly cheapening money. Like a fall from a high building, it is not a payments deficit that hurts but the sudden stop.

The inflation of money in Japan was 'exported' via the carry trades etc. Now the super strong Yen could means that the money are now home in Japan. What need to happen next is some poeple start to use these Yen to buy things and cause the prices to shoot up (something which feeds on itself). That would be the endgame.

(and yes, I know Japan had trade surplus, not deficit. But it is ok to have printed money show up abroad, but when they all heads home to buy something, that is when trouble begins. the same applies to US/UK, if all these printing end up abroad, all looks ok for a long time until all these money flood back on the shore to buy something, or to buy anything).

Edited by easybetman

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"Denying the existence of deflation is the same as denying the Yang but accepting the Ying. What most people fail to undetrstand is that economies are cyclical and they go through periods of both inflation and deflation. Deflationary cycles follow inflationary cycles just as stocks markets rise and fall and property markets boom and bust. You could say it is impossible to have one without the other."

It is impossible to disagree.

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"Denying the existence of deflation is the same as denying the Yang but accepting the Ying. What most people fail to undetrstand is that economies are cyclical and they go through periods of both inflation and deflation. Deflationary cycles follow inflationary cycles just as stocks markets rise and fall and property markets boom and bust. You could say it is impossible to have one without the other."

It is impossible to disagree.

Yes, because money is a mystical element that it is beyond the ability of mankind to fabricate. It's a good job that central banks can't simply print potentially infinite quantities of new money upon demand or what you just said wouldn't be valid. :lol:

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"Denying the existence of deflation is the same as denying the Yang but accepting the Ying. What most people fail to undetrstand is that economies are cyclical and they go through periods of both inflation and deflation. Deflationary cycles follow inflationary cycles just as stocks markets rise and fall and property markets boom and bust. You could say it is impossible to have one without the other."

It is impossible to disagree.

Deflation is here, Bacon Buttie and a Coffee £1.39 @ weatherspoons.

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Yes, because money is a mystical element that it is beyond the ability of mankind to fabricate. It's a good job that central banks can't simply print potentially infinite quantities of new money upon demand or what you just said wouldn't be valid. :lol:

yep

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"Denying the existence of deflation is the same as denying the Yang but accepting the Ying. What most people fail to undetrstand is that economies are cyclical and they go through periods of both inflation and deflation. Deflationary cycles follow inflationary cycles just as stocks markets rise and fall and property markets boom and bust. You could say it is impossible to have one without the other."

It is impossible to disagree.

Only because most folk blindly accept that economies are like the seasons of the year...an unstoppable force of nature and destined to repeat ad infinitum.

This only seems to be true because it is impossible to co-ordinate all the forces that could control the world economy and make them all work to the same aim. Just because the world situation prevents a unified plan of action it does not follow that economies are uncontrollable.

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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