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Debt Deflation Starts To Get A Grip On The World

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Deflation is welcome to come and get a grip of my energy bills etc.

Could be that we see a temporary flat-lining in energy prices for a while and other things getting cheaper as downward pressure continues on world commodities in the wake of China's difficulties.

Meanwhile deflation is good for savers and bad for the indebted. :)

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....there is plenty of digital money in the system......only problem is it has to stay as a digital hypothetical value number because income must be made from yield.....destroy the number, destroy the yield, yield is hard to find....lower yield = deflation......less money to spend only means prices come down to secure a sale. ;)

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Could be that we see a temporary flat-lining in energy prices for a while and other things getting cheaper as downward pressure continues on world commodities in the wake of China's difficulties.

Meanwhile deflation is good for savers and bad for the indebted. :)

That scenario is fine by me, guess there will always be a cyclical element to things.

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Morgan Stanley says that 45pc of all private credit in China must be refinanced over the next 12 months, so fasten your seatbelts. Moreover, China is struggling to keep its industries humming at the current exchange rate. Patrick Artus, from Natixis, says surging wages - and falling productivity - mean that it now costs 10pc more to produce the Airbus A320 in Tianjing than it does in Toulouse.

Double ouch.

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USA stops exporting liquidity and inflation to emerging markets. Emerging market governments raise interest rates to stop funds fleeing. Is this the start of a 'currency crisis'?

The markets are so interlinked, deflation is almost a reality in the eurozone. With the German elections out of the way, can Germany now agree to Euro 'QE'? Or will the holder of the world reserve currency realise they cannot slow down the $65BN a month print run, and raise the bar again?

Place your bets here.....

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Patrick Artus, from Natixis, says surging wages - and falling productivity - mean that it now costs 10pc more to produce the Airbus A320 in Tianjing than it does in Toulouse.

QE has done it's job - forced wage inflation in the East. That was why Obama could whack up Federal wages by 40% this week. Now the West can raise wages without losing as much competitiveness to the East and Western assets won't look as overvalued to Western earnings.

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USA stops exporting liquidity and inflation to emerging markets. Emerging market governments raise interest rates to stop funds fleeing. Is this the start of a 'currency crisis'?

The markets are so interlinked, deflation is almost a reality in the eurozone. With the German elections out of the way, can Germany now agree to Euro 'QE'? Or will the holder of the world reserve currency realise they cannot slow down the $65BN a month print run, and raise the bar again?

Place your bets here.....

Debt deflation has been the reality since 2008. It's been kept at bay, proximately, by massive domestic credit creation in the BRIC and emerging market economies. That in turn has been used to finance extraordinary Western deficits. Property bubbles in these countries have now blown up, just like the West, and they too are now facing the prospect of a drawn out, painful deleveraging over many years. The world economy is collapsing. QE is irrelevant, and in any case disinflationary for almost everything except financial assets.

Minsky and Keen = right.

Bernanke and Krugman = wrong.

.

Edited by zugzwang

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Deflation is welcome to come and get a grip of my energy bills etc.

House prices first, please. Higher energy bills may be a trigger to get some oldies to downsize, and another negative for making larger houses unappealing to buyers, so helping them correct harder.

So why are they letting it happen?
Deflation is not a wilful act of perversity by authorities, but the culmination of a historic process. Deflation is not something politicians choose. Sometimes however the system as a whole is led to outcomes that no one would prefer, and that are tolerable only in comparison to alternatives that are even worse.

To rebalance a lot of the unfairness that has been compounding in the system, with a broken flawed outlook on HPI being good. Overvalued asset values, and too much possessed by the old and reckless debtors. To put a stop to £4.5m-£6m super mansions still being built on a site suitable for multiple nice homes, showing the authorities and planners clearly haven't woken up to the crisis for younger people. There's been too much Yin and no Yang. Inflation and deflation are not polar opposites, but brother and sister of the same species.

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House prices first, please. Higher energy bills may be a trigger to get some oldies to downsize, and another negative for making larger houses unappealing to buyers, so helping them correct harder.

To rebalance a lot of the unfairness that has been compounding in the system, with a broken flawed outlook on HPI being good. Overvalued asset values, and too much possessed by the old and reckless debtors. To put a stop to £4.5m-£6m super mansions still being built on a site suitable for multiple nice homes, showing the authorities and planners clearly haven't woken up to the crisis for younger people. There's been too much Yin and no Yang. Inflation and deflation are not polar opposites, but brother and sister of the same species.

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Falling inflation again in the Eurozone:

http://www.cnbc.com/id/101379752

Deflation worries back as euro zone inflation falls again

Published: Friday, 31 Jan 2014 | 5:54 AM ET

By: Katrina Bishop | Deputy News Editor, CNBC.com

Inflation in the euro zone fell more than expected in January to the level at which the European Central Bank last cut interest rates, as unemployment in the region remained stuck at 12 percent.

Consumer prices rose by 0.7 percent year-on-year in January, according to official statistics released by Eurostat - significantly below the 0.9 percent increase expected by economists.

The figures are likely to give rise to more deflationary concerns, which were ignited when October's data showed inflation had fallen to a 47-month low of 0.7 percent. The concerns were not helped by December's lower-than-expected inflation figure of 0.8 percent.

Economists said the figures would up the pressure on the European Central Bank (ECB), which is due to will make its next monetary policy decision on Thursday, February 6. October's surprisingly low figures spurred the bank to cut its main interest rate to 0.25 percent from 0.5 percent.

"The latest euro zone unemployment and inflation data maintain the pressure on the ECB to do more to ward off deflation risks, perhaps as soon as next week," Capital Economics' Chief European Economist Jonathan Loynes said in a note.

"With the strong euro adding to deflation risks, the pressure on ECB President Mario Draghi to follow up his recent dovish words with further policy action is very strong."

While Howard Archer, chief European economist at IHS Global Insight, described the data as "worrying news for the ECB."

"While the ECB remains adamant that overall deflation is unlikely in the euro zone, it will be extremely uncomfortable with consumer price inflation coming back down to 0.7 percent," he said in a note.

As such, it looked increasingly possible that the bank would trim its refinancing rate to 0.10-0.15 percent, Archer added.

Stephen King, chief economist at HSBC, says low inflation is one of the biggest risks of 2014, especially in Europe and warns central banks not to get too complacent.

Meanwhile, the unemployment rate for the euro zone came in at 12 percent for December - unchanged from November's 12 percent (which was revised down from earlier estimates of 12.1 percent). The number of jobless people in the region, however, fell by 129,000 - the largest monthly fall since the start of the financial crisis.

Investec Capital Markets analysts said in a note that the unemployment data was "hardly a strong signal of a turnaround in the euro zone."

But they added: "Considering we had 18 months of almost consistent hikes in the unemployment rate prior to 2013 (from 9.8 percent in June 2011 to 12 percent in December 2012), it is a strong sign that the euro zone has at least stemmed the bleeding."

Archer agreed that although it was unclear that a decisive turnaround in euro zone labor markets was underway, they did look to have stabilized.

"Nevertheless, we suspect that with euro zone inflation set to remain very low for a prolonged period, bank lending to businesses continuing to fall markedly and the euro zone's recovery likely to remain gradual, the ECB is more likely than not to eventually take further action," he said.

"The ECB has indicated that it is particularly likely to act if there is an unwarranted rise in money market rates or if the medium-term inflation outlook moves lower."

With regards to those under the age of 25, December's youth unemployment rate was 23.8 percent, slightly lower than the 23.9 percent recorded for the same month in 2012.

In some countries, however, the youth jobless figures paint a more gloomy picture. The rate of unemployment is highest in Greece, at almost 60 percent and Spain, where it is at 54.3 percent.

Edited by AvidFan

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Falling inflation again in the Eurozone:

http://www.cnbc.com/id/101379752

Puts any rises in interest rates even further on the back burner with world wide deflationary forces. Looks like we could have the MPC sitting on their hands again as inflation plummets below the 2% target but house prices head for double digits despite being bitten once before.

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pworks250sq-2.jpg

Mish on AEP

http://globaleconomicanalysis.blogspot.co.uk/2014/01/what-crisis-taught-us-more-bubbles-we.html

Deflation is actually the natural state of affairs. As a result of increased productivity, prices should drop over time, with more goods available at cheaper prices, to the benefit of everyone!

And in spite of the ridiculous notion that people will hold off on consumer purchases if prices drop, it's actually the other way around. Falling prices and bargains spur sales.

If falling prices stopped sales, there would have been no sales of flat-panel TVs, computers, or any other electronic devices for years.

If the price of healthcare dropped, people would have more money to spend on other things, and spend they would.

It's asset prices, not consumer prices, where people stay away when prices are falling. That makes asset bubbles all the more dangerous.

Read more at http://globaleconomicanalysis.blogspot.com/2014/01/what-crisis-taught-us-more-bubbles-we.html#dErS3UVQuM2eJdDo.99

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Also I hadn't realised this bit, but it's probably already been covered in a Germany thread.

The European Central Bank is paralysed after the German constitutional court read the riot act last Friday, strongly suggesting that its bond rescue plan (OMT) is Ultra Vires and a violation of "monetary financing".

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Mish talks much sense but a system which relies on private credit creation by the banks requires INflation in order to keep going.

No chance of the banks getting their fangs out of the neck of the real economy, so inflation it will be at whatever cost. Especially since inflation benefits those other people already at the top of the financial pile who hold wealth as assets.

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Mish talks much sense but a system which relies on private credit creation by the banks requires INflation in order to keep going.

No chance of the banks getting their fangs out of the neck of the real economy, so inflation it will be at whatever cost. Especially since inflation benefits those other people already at the top of the financial pile who hold wealth as assets.

They do, of course, which is why TPTB prefer to use QE rather than cut taxes. The difficult part is getting the amount of inflation right. Too little and the economy continues to swoon, too much and debtors begin to liquidate their assets to maintain a standard of living.

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Another post on the subject by Mish

http://

globaleconomicanalysis.blogspot.co.uk/2014/02/deflation-theory-reality-check-why.html

Reality Check Questions

If price of food drops will people stop eating?

If the price of gasoline drops will people stop driving?

If price of airline tickets drop will people stop flying?

If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?

If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?

If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?

Will people delay medical expenses if prices drop?

If your child has a birthday next week, will you hold off buying him a present because the price of toys will be cheaper next month?

If your lease is up and you have to move, can you wait six months in anticipation of better prices? Two months? One Month?

If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

Other than meaningless examples like waiting a few days for known sales, can anyone come up with any consumer item that people will delay purchasing simply because prices are falling?

Edited by billybong

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Another post on the subject by Mish

One to add to that -

If the price of gold drops, do people stop buying?

(Answer - No. Demand increases massively).

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Via food, fuel, houses and stocks they seem very desperate to try and create inflation. Food price increases are almost out of control IMPO.

I don't see any salary inflation in our future for years to come, and that's the only kind of inflation that boosts house prices. Inflation in everything else (food, energy, medical) just takes away from the money people have to spend on housing.

Was waiting with someone at hospital waiting room on Monday, and picked up the Independent. Piece in there which poured floods of cold water on prospects of wage inflation, despite all the political noises about it. Also next to it piece about German hotel bookings up year on year, but much of increase down to increased domestic bookings, rather than foreign.

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