Inflation Or Deflation

[hedi]

most of my money is in cash, so the idea of inflation is terrifying. and i know a lot of people on here seem to subscribe to the govenement and banks wishing to inflate out of the problem.

my only point is that the money men who have made millions have their money somewhere. now if inflation takes off they are surely going to be much bigger losers than you or me. the banks only get back half what they lent and the top people lose millions in real value.

back in the sixties and fifites when there was no real inflation, the rich lived extremely well. the inflation of the seventies and eighties almost destroyed their wealth, and in many cases did so.

im not sure that the rich like inflation,but i know govenments do. the question is who really controals the money.

[scott666]

Bernanke has weathered criticism before. As a Fed governor in 2002, he earned the title "Helicopter Ben" when he said the Fed would do everything necessary to fight a deflationary slump, a strategy he compared to a "helicopter drop" of money.

and my favourite quote of the day,

Bernanke's academic work, which includes a study of the Fed's role during the Great Depression, equips him well to deal with the current crisis, said Lyle Gramley, a former Fed governor and now senior economic adviser to the Stanford Group in Washington

Click

[look to the past]

Inflation – it was such a worry to me – I bought a house – having all that money in a bank and only getting 4% while every thing else was going up by 10% was just to scary in the end – I managed 3 years as an STR, but now I don’t have that worry anymore – I can only suggest that you invest the money well as I suspect that soon interest rates will come down but inflation will stay high – possibly making your savings worse than they already are

[jimmyjazz]

most of my money is in cash, so the idea of inflation is terrifying. and i know a lot of people on here seem to subscribe to the govenement and banks wishing to inflate out of the problem.

my only point is that the money men who have made millions have their money somewhere. now if inflation takes off they are surely going to be much bigger losers than you or me. the banks only get back half what they lent and the top people lose millions in real value.

back in the sixties and fifites when there was no real inflation, the rich lived extremely well. the inflation of the seventies and eighties almost destroyed their wealth, and in many cases did so.

im not sure that the rich like inflation,but i know govenments do. the question is who really controals the money.

hedi

thats why they all convert their paper to assets like real estate asap

they aint stupid you know

when the sh.it hits the fan their paper is worth much less but they have bought and paid for real estate and capital while the rest of us are left with a bunch of pretty worthless paper

[steve99]

most of my money is in cash, so the idea of inflation is terrifying. and i know a lot of people on here seem to subscribe to the govenement and banks wishing to inflate out of the problem.

my only point is that the money men who have made millions have their money somewhere. now if inflation takes off they are surely going to be much bigger losers than you or me. the banks only get back half what they lent and the top people lose millions in real value.

back in the sixties and fifites when there was no real inflation, the rich lived extremely well. the inflation of the seventies and eighties almost destroyed their wealth, and in many cases did so.

im not sure that the rich like inflation,but i know govenments do. the question is who really controals the money.

Inflation for sure, that is the only game in town as far as the big nobs are concerned, the very same nobs always have good and timely information as to what asset class is going to inflate or deflate, the rest of us end up holding devalued money(which is intended in order to keep us at work for ever). Unlike the 70's though we as human beings cant force up wages to deal with price inflation which is just starting to take off now on account of employers in general being able to 1: Export jobs, 2: Import cheap labour, the lowest paid workers are already suffering big time from this. The only time in history that the government has been concerned about inflation is when wages have risen to match the increasing prices, hence since the unionised jobs were mostly deleted years ago they have beeen able to allow massive inflation of the money supply without the repercussions that normaly go with it, until now of course.

[Guest]

When interest rates go down next, you need to ask whether it is because we are slipping into recession.

In recessions, inflation *may* drop because of demand destruction. People without jobs don't spend or access credit.

Rates will not go down until there is a reason to do so. Like in 2005: The house market cooled off and transactions dropped, and we went through that "up 0.1% down 0.1% 80-90,000 transactions" period for 8 months, which in reality was EA geek speak for price falls. Furthermore, does anyone remember the number of high street stores that suddenly shut down? B&Q cutting 22 stores, sports chains disappearing, furniture stores closing down, all in a very short space of time indeed.

Everyone remembers 15% rates in 1990, but forgets 6% rates by 1993. Lowering rates works. Until it doesn't.

Some people think that lowering rates/inflation will sort this boom out. Er, but, isn't that game what's just happened? Forgotten the Internet crash already?

The problem with the current period is average interest rates remaining stubbornly above average pay rises. While this situation remains, forget property ladders - they don't exist.

[bubbleturbo]

A lot of nonsense on this thread.

IMO we have had the inflation, we now are at the other end of the cycle where recession and destruction of credit resets the system.

In which case, cash is king. Interestingly, that is what all the banks are currently scrambling round for. When appetite for credit dries up and credit stops expanding, the game is over.

[Guest An Bearin Bui]

I started a thread on the Economics forum discussing Bernanke as an "inflationist" and whether it's likely he'll succumb to pressure to cut rates and take extreme measures to re-inflate the bubble (even though it won't work this time):

http://www.housepricecrash.co.uk/forum/ind...showtopic=54366

In his past research papers, he's clearly heavily in favour of the Greenspan-omics of inflate or die. Does anyone agree that there could be a "Japan in the 1990s" scenario ahead for the USA (and thus the rest of us in the developed world too)? It seems likely if they keep on cutting rates and refuse to clear the speculators out, thus ruining productivity and growth potential.

[stuckmojo]

I started a thread on the Economics forum discussing Bernanke as an "inflationist" and whether it's likely he'll succumb to pressure to cut rates and take extreme measures to re-inflate the bubble (even though it won't work this time):

http://www.housepricecrash.co.uk/forum/ind...showtopic=54366

In his past research papers, he's clearly heavily in favour of the Greenspan-omics of inflate or die. Does anyone agree that there could be a "Japan in the 1990s" scenario ahead for the USA (and thus the rest of us in the developed world too)? It seems likely if they keep on cutting rates and refuse to clear the speculators out, thus ruining productivity and growth potential.

I think that this is what Ben is aiming for. Except, they've got China and India still rising really fast but starting to export inflation now. They can't be buying dollars forever. The game ends when they become consumers of western goods on a large scale. At that point the western world will be no longer leading the dance

[look to the past]

In his past research papers, he's clearly heavily in favour of the Greenspan-omics of inflate or die. Does anyone agree that there could be a "Japan in the 1990s" scenario ahead for the USA (and thus the rest of us in the developed world too)?

No – in my opinion – it has happened once and a lot of lessons will be learnt from it – the only winner will be Japan (when it all implodes) – therefor nobody will let the same happen to the US – all a guess really

[Goldfinger]

when the sh.it hits the fan their paper is worth much less but they have bought and paid for real estate and capital while the rest of us are left with a bunch of pretty worthless paper

That' s for instance why I buy gold. A real asset, that actually has an upward potential.

[bubbleturbo]

I have said for a while that these central bankers are always the opposite of what you expect.

Greenspan, for example is notable for openly talking about gold back in the day and then was a serial bubble blower.

Bernanke is supposedly the "helicopter" man. Greenspan would have dropped the rate, probably several times by now where Bernanke has held firm. Companies going to the discount window are still being charged 0.5% above base.

This is a good read which supports my own theory:

http://itulip.com/forums/showthread.php?p=14679#post14679

[hedi]

A lot of nonsense on this thread.

IMO we have had the inflation, we now are at the other end of the cycle where recession and destruction of credit resets the system.

In which case, cash is king. Interestingly, that is what all the banks are currently scrambling round for. When appetite for credit dries up and credit stops expanding, the game is over.

i rather hope you are right.

surely inflation is only really inflation if wages climb at the same rate as the devaluing of the currency. and i dont see average wages climbing that fast.

the proplem with inflating the usd is that it could damage america seriously . if they try to inflate out of this, bang goes the old usa. their main export is the dollar. if it becomes worthless ,they lose their political clout.

[headmelter]

That' s for instance why I buy gold. A real asset, that actually has an upward potential.

As well as a downward potential.

[sossij]

As well as a downward potential.

Yes, but at least you would have a nice paperweight to stop your paper money blowing away

[LargelyIgnorant]

This is a good read which supports my own theory:

http://itulip.com/forums/showthread.php?p=14679#post14679

Isn't EJ's "No Deflation! Disinflation then Lots of Inflation" theory very different to your 'no more inflation' one?

[Kuma]

A lot of nonsense on this thread.

IMO we have had the inflation, we now are at the other end of the cycle where recession and destruction of credit resets the system.

In which case, cash is king. Interestingly, that is what all the banks are currently scrambling round for. When appetite for credit dries up and credit stops expanding, the game is over.

You are right, we've already had the inflation, it's just a matter of whether we will have further inflation with the corresponding wage inflation or instead we get the deflation.

I think if people could be honest they would admit they've not got a clue whether we'll have inflation or deflation, there's precedent for both over the last 30 years. e.g. the inflation of the 70's and the deflation the japs have been living through the last 16 odd years. If it's even a choice for those in power I'd wager they've not even made their minds up yet, frankly I get the impression that any fine control is an illusion and their hands are tied this time round.

I think the key thing is to remain vigilant. Because it is the MPC mandate to target inflation, I (<-important bit as I'm rather new to all this) think the only way(s) we will see rampent inflation is if:

- the CPI figure is fiddled (not that it's a true measure of inflation anyway...), perhaps by adding something hugely deflationary to the basket.

- or the MPC have their target figure adjusted upwards (uh-oh)

Personally I've a large amount in savings too, so clearly I'd favour deflation and I think that's what we're going to get. I've a sneaky suspicion though that if I'd happen to be paid in gold then I'd be making the case for inflation.

Reasons against inflation:

0. the BOE mandate is to target inflation and they are (supposedly) independent, they are also appointed so shouldn't have to worry so much about a pissed off public

1. we are a net importer, inflation will weaken our pound, prices will shoot up for everything, cue very painful wage inflation

2. inflation is dangerous, it undermines peoples faith in a currency, this can get out of control, see zimbabwe for example

3. foreign debt holders would be mighty pissed if we inflated, I wouldn't like to see what happens if they start dumping our debt

Edited August 29, 2007 by Kuma

[gravity always wins]

A lot of nonsense on this thread.

IMO we have had the inflation, we now are at the other end of the cycle where recession and destruction of credit resets the system.

In which case, cash is king. Interestingly, that is what all the banks are currently scrambling round for. When appetite for credit dries up and credit stops expanding, the game is over.

I agree I believe we have had the inflation (energy, shelter and food) and are still having it food etc.

We are maxed out on credit those who asked for it got it the rest don't want it.

How can we have more inflation if the supply of money dries up? (until our economy is in tatters and nobody wants pounds anymore and so the cost of imports increases dramatically but then we haven't got any money so we stop buying.

[gravity always wins]

I (<-important bit as I'm rather new to all this) think the only way(s) we will see rampent inflation is if:

- the CPI figure is fiddled (not that it's a true measure of inflation anyway...), perhaps by adding something hugely deflationary to the basket.

- or the MPC have their target figure adjusted upwards (uh-oh)

What like next years housing stats?

[Kuma]

What like next years housing stats?

hehe

[Sebastian]

That' s for instance why I buy gold. A real asset, that actually has an upward potential.

It has not gone far in the past 12 months, since the highs we saw early last year. If the precious metal price is driven by demand, it must be rather worrying that during a time of record economic growth and liquidity overkill, gold has not been able to appreciate in value. One would also wonder why the Swiss National Bank would sell gold reserves if it believed the metal was under-valued. Another concern for gold followers is the fact the metal was ignored during the recent global financial market debacle. Why have funds and investors not flocked to the golden crozier? If neither economic growth nor financial market meltdown can stimulate the price of gold these days, what can?

Edited August 29, 2007 by Sebastian

[Kuma]

It has not gone far in the past 12 months, since the highs we saw early last year. If the precious metal price is driven by demand, it must be rather worrying that during a time of record economic growth and liquidity overkill, gold has not been able to appreciate in value.

Agreed

One would also wonder why the Swiss National Bank would sell gold reserves if it believed the metal was under-valued.

Do these reserves actually leave their bank vault? Possession being 9/10 of the law and all, if the 'shit hits the fan' then they'll just confiscate it like the yanks did.

Another concern for gold followers is the fact the metal was ignored during the recent global financial market debacle. Why have funds and investors not flocked to the golden crozier? If neither economic growth nor financuial market meltdown can stimulate the price of gold these days, what can?

As I understand it the the recent problems have been to do with liquidity, if anything they been deflationary as people have been selling assets to free up cash.

[Goldfinger]

I think that this is what Ben is aiming for. Except, they've got China and India still rising really fast but starting to export inflation now. They can't be buying dollars forever. The game ends when they become consumers of western goods on a large scale. At that point the western world will be no longer leading the dance

This is exactly the point. Money supply (and asset price) deflation does not exclude retail price inflation. Is that so difficult to understand? Therefore, prepare to become poorer. I am also sure we will see high interest at a later stage. Otherwise, all fiat will tank for good.

Edited August 29, 2007 by Goldfinger

[LargelyIgnorant]

One would also wonder why the Swiss National Bank would sell gold reserves if it believed the metal was under-valued.

For the same reason the CBs preannounce their sales before the actual transaction - to lower the price

Another concern for gold followers is the fact the metal was ignored during the recent global financial market debacle. Why have funds and investors not flocked to the golden crozier? If neither economic growth nor financuial market meltdown can stimulate the price of gold these days, what can?

Physical demand exceeding the CBs ability to 'manage' the paper markets.

From Paul Volker's memoirs:

Joint intervention in gold sales that was needed to prevent a steep rise in the gold price, however, was not undertaken. That was a mistake. Through March, the price of gold rose rapidly and that knocked the psychological props out from under the dollar

[Goldfinger]

How can we have more inflation if the supply of money dries up? (until our economy is in tatters and nobody wants pounds anymore and so the cost of imports increases dramatically but then we haven't got any money so we stop buying.

So what? China will buy. They have trillions.