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World Faces Low Inflation Threat Not Seen Since Before Wwii

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http://www.telegraph.co.uk/finance/economics/11319945/World-faces-low-inflation-threat-not-seen-since-before-WWII.html

Increases in the prices of goods and services in the world’s largest economies are slowing dramatically. Analysts are predicting that inflation will fall below 2pc in all of the countries that make up the G7 group of advanced nations this year – the first time that has happened since before the Second World War.

Indeed, Japan was the only G7 country whose inflation rate was above 2pc last year. And economists believe that was because its government increased sales tax which had the effect of artificially boosting prices.

But falling prices mean things are getting cheaper (or, at least, are not getting too expensive too quickly). Surely that is a good thing?

Not necessarily. The key ambition of any government is to achieve price stability. That is why the central banks of all G7 countries - Canada, France, Germany, Italy, Japan, the UK and the US - target an inflation rate of close to 2pc. This gives businesses and consumers the certainty they need to plan for the future. But with price growth slowing, many economists are worried that some of the world’s biggest economies could slip into outright deflation.

Whether or not this is a problem depends on the particular type of deflation that is occurring.

How awful, low inflation. I'm not buying anything until inflation is soaring!!!!

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http://www.telegraph.co.uk/finance/economics/11319945/World-faces-low-inflation-threat-not-seen-since-before-WWII.html

How awful, low inflation. I'm not buying anything until inflation is soaring!!!!

I am terrified by all of these threats of cheaper prices.

We are being played by banker thieves.

Edited by TheCountOfNowhere

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This gives businesses and consumers the certainty they need to plan for the future.

:lol:

Wouldn't they be able to plan even better for the future if they know goods and services are going to be cheaper and they weren't being thieved from at every turn.

Edited by billybong

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That is why the central banks of all G7 countries - Canada, France, Germany, Italy, Japan, the UK and the US - target an inflation rate of close to 2pc. This gives businesses and consumers the certainty they need to plan for the future.

Of course targeting an inflation rate of 1%, or 0.5% or, shock horror, 0% wouldn't allow businesses and consumers to plan for the future, would it? Nosiree, 2% is what they intend to plan for, and 2% they jolly well want.

What a complete pile of pig shit.

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Looks like the global policy of ZIRP/QE didn't work after all. A Second Great Depression it is then, 2008-xx.

Its worse this time....thanks to the above.

Still many in the know will have got out early this time and be considerably better off due to their tax payer backed free money...

Edited by TheCountOfNowhere

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Central banks need to work fast to stop the world falling into a deflationary spiral

Hasn't that been their stated objective for well over 10 years now (at least) and look what a hash they've made of everything.

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The developed world has become used to the "good" kind of deflation. This occurs when prices fall because of improvements in productivity and higher supply. For example, consumer electronics – such as computers, smartphones, and televisions – tend to get cheaper year after year because we are getting better at making them and an increasing number of companies are entering the sector.

Well stop manipulating the housing market and house prices then that market could get the "good" kind of deflation as well.

Actually almost everything would get good deflation if they just left it alone.

Edited by billybong

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The key ambition of any government is to snip away at the spending power of the plebs without them realising it and so they keep spending (using debt if necessary). A deflationary environment makes that nearly impossible.

Exactly why people need to turn away from the banks in their current form and those in Westminster supporting them with our money and future.

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Peston was doing his best on BBC News talking about the disaster that is deflation, and how more QE will be needed. An establishment shill if ever there was.

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The key ambition of any government is to achieve price stability. That is why the central banks of all G7 countries - Canada, France, Germany, Italy, Japan, the UK and the US - target an inflation rate of close to 2pc.

So the ambition is price stability- and what does the world 'stable' mean?;

stable1
ˈsteɪb(ə)l/
adjective
  1. (of an object or structure) not likely to give way or overturn; firmly fixed.
    "specially designed dinghies that are very stable"
    synonyms:

    firm, solid, steady, secure, fixed, strong, fast, stout, sturdy, safe,moored, anchored, stuck down, immovable, well built, well constructed,substantial

So they are in the business of locking down prices by causing them to constantly change in an upward direction? That is a very odd interpretation of stability.

The truth is that deflation is not a problem for the real economy- it's a problem for the bloated parasite of financial sector debt that now sits astride that economy, sucking the life out of it.

Deflation in prices is what the free market is all about- what capitalism is all about- competition drives prices down as suppliers innovate and compete for market share.

So what are we really saying here- that our current financial system is no longer compatible with capitalism? That we must artificially impoverish ourselves by trashing the value of our money in order to preserve the carnival of parasites who have created so much debt that the only way to save them is to throw everyone else under the bus?

Who is this system now serving?

Edited to add this little gem from the article;

The worry is that this will lead to a dangerous downward spiral in which consumers hold off spending as they wait for prices to fall further.

Does anyone imagine for a moment that this moron did not type these words on a state of the art device that he surely knew would depreciate in price from the day he purchased it?

Or is he out there somewhere still firing up his Amstrad PCW from circa 1995? :lol:

Edited by wonderpup

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..deflation (or very low inflation) effectively increases the amount of debt owed and the rate of interest that borrowers pay.

This phenomenon can be very difficult to reverse once it gathers momentum. Japan has spent the best part of two decades using ever-stronger forms of monetary firepower in its attempt to boost inflation.

Whatever Japan has been doing Japan's inflation has been very low for about 30 years now (after a period of very high inflation) and it has had regular episodes of deflation during that time and Japan's GDP per Capita isn't much different to the UK's so they must have been doing something right and their deflation can't have been that "bad" or "dangerous" or at least not when comparing it to the UK's. For sure then it doesn't make much sense for UK commentators to criticise Japan's economy.

http://

www.tradingeconomics.com/japan/inflation-cpi

http://

en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita

In fact the charts in the links below show that Japan has on average performed better than the UK in GDP per Capita terms for the last 30 years (Japan's low inflation combined with deflation period).

They've even managed it with a relatively flat population in the last 30 years.

http://

www.tradingeconomics.com/united-kingdom/gdp-per-capita

http://

www.tradingeconomics.com/japan/gdp-per-capita

http://

www.tradingeconomics.com/japan/population

Edited by billybong

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From the comments section:

In the UK at least RPI inflation is indeed at 2% which is exactly where it was in January 2000! Just because someone decided to replace it with CPI doesn't mean actual inflation has dropped below the golden 2% target.

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Peston was doing his best on BBC News talking about the disaster that is deflation, and how more QE will be needed. An establishment shill if ever there was.

+1

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At any rate none of that low inflation/deflation threat stuff will be of much interest to the UK because it's growing at such a fast rate? A fast rate according to all the pundits and government politicians that is.

If the rest of the G7/the world won't copy the UK's amazing economic policies then that's their look out isn't it.

Edited by billybong

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Problem with deflation is that just holding cash makes it more valuable day by day

So capital gets allocated away from productive uses

However, that was already happening with public sector ponzis and housing speculation, so maybe this is the global economy twisting to uncurl itself from current structural silliness

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Mr Manhattan (Roubini) whining on about deflation. Yesterday I was looking at asking prices and rentals for micro apartments in El Born (La Ribera) Barcelona yesterday - some crash. How many older landlords?

Here, too many hpcers have emotional breakdowns and award victimhood when anything might threaten values to drop from so many older owners owning out right, in their half million pounds hyperinflated rubbish houses. Last few years which has seen them flood into BTL (again), as their hundreds of thousands in bank not earning any interest, or plain old debt to double down against and outbidding massively younger generations.

The excuses giving Bernanke (and Merv + others) the greenlight to flood system with QE to destroy younger generations and protect the VI. Don't tell my about any US hpc, when you look at low-mid-high US prime housing markets. Get out of deflation by crashing housing market and fresh mortgage lending, in volume of €Trillion, to younger generations. Not printing to protect 'the victims'.

January 5, 2015

...The Eurozone: A Brief Timeline of the Troubles

So what, exactly, is happening inside the Eurozone now? The problems of the Eurozone are, of course, complex, but for the sake of brevity let's take a look at a few of the most disturbing facts that seem to highlight the key difficulties that now exist there:

The overall inflation rate in the Eurozone now stands at 0.3% — which demonstrates insufficient demand for goods and services – and now the EZ is at risk of outright deflation. The overall rate of unemployment in the Eurozone is 11.5%. While 11.5% unemployment is shockingly high by American standards, it doesn't really give you a true sense of just how bad the problem is in the so-called PIGS nations (Portugal, Italy, Greece, Spain) of Europe. In Greece & Spain, for example, the unemployment rate is 25%; even more disturbing, though, the rate of youth unemployment in both of those countries is about 50%, which gives you some sense of the level of desperation and hopelessness among young people there.

In Italy, the rate of youth unemployment is above 30%. Italy's output is 8% below pre-crisis levels, but industrial production has collapsed 25%. In Italy, this is not just economic stagnation — it's industrial depression. In fact, it would be fair to say that the Eurozone is just one shock away from outright deflation — a nightmarish state of affairs where a sustained lack of demand and economic growth causes prices to fall.

Some people say Europe is going to get 'Japanified' — a reference to Japan's dismal economic performance over the last twenty years, which is sometimes referred to as 'The Lost Two Decades'. But, in fact, the risks in Europe are even worse. While the Japanese have stagnated, Japan has not suffered the sort of debt crisis that’s affected the Eurozone. This is because, unlike the Eurozone, the Bank of Japan has the flexibility and willingness to monetize debt and print money. It's much easier for a national, independent central bank to act to bail out one country than for Frankfurt to attempt to bail out the divergent economies of the Eurozone, where there is no easy one-size-fits-all monetary policy solution to save the day.

Rather than get lost in the wonky math of the Eurozone, as macroeconomists so often do, I’d like to tell you about the challenges the Eurozone faces in a slightly more interesting way: By comparing it to a familiar organization of states—the United States of America.

http://www.roubinisedge.com/nouriel-unplugged/9-ways-the-eurozone-is-more-fragile-than-the-us

By Ben S. Bernanke
Thursday, November 4, 2010

The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html

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Problem with deflation is that just holding cash makes it more valuable day by day

So capital gets allocated away from productive uses

However, that was already happening with public sector ponzis and housing speculation, so maybe this is the global economy twisting to uncurl itself from current structural silliness

It's not very productive of me to buy a house a house at £500,000 which I think is only worth about £225,000 and which would leave us with debt to carry, less money to spend on tradespeople and additions, and all sorts of other spending in the economy. It's not productive use to buy into an overvalued zombie business either, reliant on QE to come... else suffer a period of having to survive with lower orders in natural deflation.

Deflation is just a delayed consequence of many years of compounding inflation.

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