Thursday, September 11, 2008

If USD stays strong -> deflation, if USD drops again -> inflation

US Dollar Rally Signals a Severe Deflationary Depression

Maybe this article over-simplifies things but it seems to make good sense, especially the last few paragraphs. Sorry if you find it off topic. I find the deflation/inflation discussion important to how I try maintain my savings before buying a house in a few years time. "Therefore, anyone with a one-way bet on deflation could be wiped out if we experience one or two highly-inflationary periods along the way."

Posted by mountain goat @ 12:41 PM (1369 views)
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18 thoughts on “If USD stays strong -> deflation, if USD drops again -> inflation

  • 250 years of stock and debt graphs would indicate a deflationary depression is due.
    But the bailout strategies of governments and central banks seems to be very inflationary.

    So it appears that the governments/central banks hold the key to the inflation v deflation debate.
    Or do they?

    The continued bailouts will make the tax-payer poorer and poorer and poorer.
    At some point the tax-payer will be so burdened with fiat debt that they will refuse to work for GBP, USD etc any more.
    Maybe at this point gold/silver will become tradeable currencies via GoldMoney and bullionVault etc

    Both the Calleman and Armstrong models point to this happening in 2011

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  • I agree that the tax payer will become over burdened in the short to medium term. No evidence for a long term series of bail-out exists and although well structured and passionate the article is basically fortune telling at best.

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  • Yes fortune telling is cheap. What I like is it tries to make sense of what has happened since July. i.e. oil down and dollar up. You don’t need dollar cospiracy theories. He says “the winds of deflation began to displace inflationary forces”. In other words what we have seen is people believing the Fed can’t bail us out, we are going into a deflationary depression. I also like the idea that this verdict is on a knife edge. Do we crash from here or are we in for another episode of inflation. I suspect the swing one way or the other will go on for a few more months yet.

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  • sorry: You don’t need dollar conspiracy theories

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  • S2R another swing to expectation of inflation might correspond to the model you often present which shows a peak next spring before the big collapse.

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  • mountain goat,

    The Armstrong model has a turning point in April 2009
    But the real clue in the inflation v deflation debate was in the last turning point in March 2008
    It showed a 30 year bottom in 10 Year T-bill yields (long term IRs).

    Under a deflationary view long term IRs would come down to near zero.
    IMHO I think inflation via never ending bailouts is the outcome.

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  • planning4acrash says:

    S2r, the whole point of the post Bretton Wood’s, end of gold standard system was to facilitate endless bailouts without risk of a run on a central bank. Because int’l investors can only demand freely printed Greenback, not limited gold.They intend2inflate

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  • planning4acrash says:

    See podcast 17 of the Lew Rockwell Show. lewrockwell.com for more info on that. In a free market, we would get a tough dose of deflation, followed by stability. With central banking and fiat money, we have corporate command&control, not free enterprise.

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  • planning4acrash says:

    The important thing is,2suspend logic&put yourself in the mind of a central banker who can bail out the market they rely on. They can drop it if they are out of the market & ready to buy up deflated assets.If bankers want deflation,wait till post election

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  • I am with p4ac. I get the argument that the banks have digitally created money, and that the withdrawal of this “money” can cause deflation, but IMO it will be massively outweighed by the ability to print fiat money. I think inflation like the world has never seen is on its way.

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  • planning4acrash says:

    The interesting difference between the great depression and now is the lack of a gold standard to limit the ability to print money. Deflation has benefits to bankers if managed well for them. We will know the direction by Christmas, after the US election.

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  • Inbreda the printed money has to get into the system. How do you envisage this will happen?

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  • planning4acrash says:

    Apparently much of USA debt is due4 re-financing about 28thSep. It is thought that f&f came too early for them. Who will buy treasuries now?! Will the USA become insolvent by October? This could vault Constitutional party to mainstream. WillB interesting!

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  • last_days_of_disco says:

    I really think that deflation is so awesomely powerful that anyone who tries to fight it with inflation will end up like Zimbabwe. The best thing a truly patriotic leader can do for the UK is let deflation happen and try to keep everyone alive.

    Things will just go loony so fast that people will stop it in its tracks by force if necessary. Governments will try for stagflation but the thing is the deflation has happened. Every credit write-down is money going bang, gone forever. And it means no more easy money for you and me the hallowed consumer. That means lots of long held mantras are about to be trashed. Everything we have ever known is going to change. Its going to be so hard to get our heads around it. And that is the dangerous thing financially. Things that made sense for 50 years will suddenly be crazy.

    People don’t cope well with change like that. Lots of lemmings -> cliff, nothing we can do about it, nothing the central banks can do about it. Nothing anyone can do about it. Housing is a great example of this. People are still “expanding their portfolios” even though the only reason banks can lend is they are flushing their bad debts down the pipes into the taxpayers pocket (that can’t go on, I don’t care how many aluminaties, sun gods, mafias, whatever are pulling strings behind the scenes). Everyone knows what happened in Germany only 50 years ago or so we are not all that stupid. Hyper-inflation = war and that is no fun for anyone.

    Lots more madness to follow the mania of the bubble. Nasty.

    The Germans seem quite well organized and the reason is they still remember the consequences all too well.
    They are very careful about manias.

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  • planning4acrash says:

    Last days of disco. You forget the endgame. ‘Our’ Government want to plunge Sterling another 20% to get Euro parity or less to sell us the Euro as a problem, reaction, solution. American politicians want to get Canadian Dollar and Peso parity to sell a North American Union.

    They are heading in that direction. Problem for them may be however, that they have been so successful that they will under shoot, overshoot, basically miss target and foul their own plans. They may even try to crash the dollar and sterling completely if they can’t get parity, and, the weight of the hyper-leveraged derivatives market means that they have enough liquidity in the system to do that. Our only hope could be that the USA becomes insolvent prior to the election, and the third party gets in. Its a long shot, but I don’t see much help otherwise. Maybe, enough traders realise that the bankers will crash the system post election for them to bail out and crash it pre-election. This will manifest in them not buying up the treasury debt that is up for renewal at the end of this month. the USA, by taking f&f onto their books have affectively downgraded the rating of USA Treasuries, so, expect carnage, even if the rating agencies say otherwise. I think enough people are wised up to the total bull coming from rating agencies like Moody’s, who somehow claim that the USA is still AAA rated!!! Laughable!!!!!

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  • planning4acrash says:

    S2R, would be great to see some of those 250yr graphs posted if you have time!

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  • planning4acrash says:

    So, the price of oil in gold has fallen from about 18 to 10 ounces a barrel. If we had a gold standard, our economy would be booming like it was the year 2000, energy prices would be down 25%? And we would all be able to buy houses!

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