Thursday, July 15, 2010

Nope you cant have deflation in a fiat money system [fingers in ears la li la li la]

[us] Wholesale prices drop 0.5 percent in June

"Wholesale prices dropped 0.5 percent last month, following declines of 0.1 percent in April and 0.3 percent in May, the Labor Department reported Thursday. Core inflation, which excludes food and energy, posted a modest 0.1 percent increase. The third month of declines in Labor's Producer Price Index raised new concerns about the possibility of deflation, a prolonged period of falling prices which has not been seen in the United States since the Great Depression of the 1930s. While most economists believe outright deflation remains a distant threat, they said it can't be totally ruled out."

Posted by techieman @ 03:28 PM (2475 views)
Please complete the required fields.



39 thoughts on “Nope you cant have deflation in a fiat money system [fingers in ears la li la li la]

  • This was all down to fluctuations in food and energy prices, which routinely fluctuate due to the weather and external factors.

    Core inflation, excluding food and energy rose by 0.1%.

    So no, this is not the start of a general deflation, although it seems that there are some people who want to actively foster the idea, and presumably have some VI in doing so..

    Reply
    Please complete the required fields.



  • “Core inflation, excluding food and energy rose by 0.1%” -yep and the fed has pumped the odd $ tril in. What if they hadnt?

    “Not the start of a general deflation” perhaps thats true ” but it cant be ruled out..”

    Reply
    Please complete the required fields.



  • China has help to keep down inflation since 80s but those days are gone. What China will do in future is to bring inflation on to everyone on the planet.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Indeed. There is M3 type inflation and price inflation. Two different kettles of fish, but actually it is only price inflation that matters.

    Reply
    Please complete the required fields.



  • paranoia blue says:

    Yes, of course, the “real buying power value” for 95% of the population had to drop, and will continue. Bring on the revolution!

    Reply
    Please complete the required fields.



  • Actually what i would like to know is when is the hyper-inflation going to kick in? As i said the boys over the pond have pumped in $trillions and yet the core inflation rate is 0.1%.

    Can some hyper-inflationists tell me WHEN the inflation numbers are going to start jumping through the roof in the US, cause i would really like to know.

    This board has been full of hyper-inflation scenarios in the US since the Fed started to pump money in. Personally i do believe there is a reasonable chance of that, but just that we will be in (at best) a benign and (at worst) a deflationary environment for some time.

    Mark M3 growth or contraction:

    This is a paper from the FED:

    ….the link between monetary growth, as measured by M3, and changes in real house prices appears to be more definite. The bottom panel of figure 1 shows a similar scatter plot for the same group of countries and periods as in the upper panel, but for changes in real house prices. The two series exhibit a small positive correlation that is statistically significant. Moreover, various tests have shown that the correlation is not just a recent phenomenon or confined to a few countries; it is evident in varying degrees both over time and across our sample of sixteen countries. Again, this finding is consistent with findings from a number of other academic researchers. (I might add that the correlation with real house prices also holds even if M3 is normalized by prices or gross domestic product. Negative correlation between interest rates and house prices is, of course, not unexpected.)

    http://www.federalreserve.gov/boarddocs/speeches/2005/20050527/default.htm

    Surprising innit?!?

    Reply
    Please complete the required fields.



  • Techieman, of all people, I thought you would understand how hyperinflation historically works.

    In a deflationary environment.

    Reply
    Please complete the required fields.



  • Techieman

    It’s a currency event. A loss of confidence in the country.

    Reply
    Please complete the required fields.



  • 7. techieman

    Why should I waste my time with someone that can look at a euro/usd chart and not spot the blindingly obvious.

    It’s not rocket science. K I S S

    Reply
    Please complete the required fields.



  • debtfree – nope i was told by various folks on here that massive printing by the fed will result in hyperinflation, stop hiding behind semantics 😉 my question is simples…. WHEN? or ok when is there going to b a dollar collapse? Its not much to ask … is it?

    I will even give a six month grace period :-).

    Reply
    Please complete the required fields.



  • mountain goat says:

    TM – big deflationary panic coming soon? Dollar bears aligning nicely with stock market bulls this past week, to catch many off guard.

    Reply
    Please complete the required fields.



  • Reply
    Please complete the required fields.



  • HPW – narrow measure for a narrow mind…!! Thats probably far too subtle for you though!

    As i said shadow stats are actually inflation biased : http://www.shadowstats.com/article/hyperinflation-2010 – have fun with that!

    MG – quit possibly…. but time will tell.

    Reply
    Please complete the required fields.



  • 10. techieman said…WHEN? or ok when is there going to b a dollar collapse? Its not much to ask … is it?

    I will even give a six month grace period………………………….

    ‘TEN MONTHS’, perhaps less if there are certain events akin to ‘9/11.’ And there’s the matter of Iran to throw into the mix as well.

    China has also downgraded Americas debt which adds to a very long list of other things. No time to list everything.

    Le Crunch.

    Feel free to bookmark.

    Reply
    Please complete the required fields.



  • Hey TC, few points:

    1. Good morning – hope everything is good.
    2. Thanks for the graphic points you made.
    3. A while back predicted a short term move in the USD – i.e. dollar weakens. Ie a counter-trend move removing dollar bullishness, obviously from Euros 1.18 to 1.29 and GBP 1.45 to 1.54 thats what happens. [no doubt someone is going to say … oh no you didnt…but i can dig out the posts if necc].
    4. Believe that this is a counter-trend move in a long term bull sequence for the greenback (but as always willing to concede) so looking for confirmations re $ buying.
    5. Havent had time to read yr you tube post – will try to get to it later.
    6. My six month grace was for someone to say we will have hyperinflation in the US by (for example) 1.1.2011. I would then say (after an agreed definition of what hyperinflation is) that would be right IF it was 6 month either side of that.
    7. Would be nice if people understood the difference between money and money and CREDIT. You never know they might even post a chart of the two, rather than wear blinkers…hope spring eternal.

    Reply
    Please complete the required fields.



  • “. Havent had time to read yr you tube post – will try to get to it later.”

    Sorry watch! Am guessing Max is still mad :-).

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Techie 7, “when”?

    We will not get hyperinflation until we have currency controls. You only get hyperinflation with currency controls, whether quantitative or qualitative, or currency pegs, or deliberately depressing or boosting your own currency, or having official buying and selling rates etc etc.

    The printing bit isn’t so important as it just goes into higher asset prices, which is a cul de sac, when you stop printing, the whole thing just reverses.

    Reply
    Please complete the required fields.



  • TC as usual Daneric makes a nice pic:

    http://4.bp.blogspot.com/_TwUS3GyHKsQ/TD-RjEKmxHI/AAAAAAAAGXg/RYlJcMPAUAY/s1600/usd.png

    [effectively we have had the red bracketed 1 up – we are now “working” the red bracketed 2 down, and then we will (per the theory) be due the red bracketed 3 up – which would be massive and take out the red bracketed 1 to the upside].

    Daneric has been posting that chart with that target quite near the top of 1. And thats they way the ebb and flow works as MG says above..

    Reply
    Please complete the required fields.



  • Hey morning mark…. since i am by nature contrarian – i think IF we get Hyperinflation (HPIn) it will be when nobody thinks we can. Personally i dont think its something we need worry about right now, whereas others on here have been saying the dollar will be crushed by helicopter ben and HPIn will result.

    Its the adage about leading the horse (lenders and borrowers) to water (funds) but not being able to make them drink it..

    Paddy does a good job IMO : http://marketplace.publicradio.org/display/web/2009/09/03/whiteboard-inflation/

    So what did you think about that fed paper re HPI [not HPIn] correlation with M3?

    Reply
    Please complete the required fields.



  • HPW – narrow measure for a narrow mind…!! Thats probably far too subtle for you though!

    A clear demonstration of how your mind works.

    Reply
    Please complete the required fields.



  • …. at least it does!

    Go look up “monetary base” and “M3″… then u might actually be able to add 1+1 and not come up with 67!

    I knew it was far too subtle. Really is that the best you can do? Is that how far your analysis can stretch.

    Reply
    Please complete the required fields.



  • Techie,

    I think the Fed and the BoE have got away with QE so far because they were, in very simple terms, filling a void created by the financial crisis. We are still in crisis mode, and it is quite likely that the devaluation caused by QE will morph into inflation as we emerge, but it may be spread over a number of years.

    If they continue to create new money instead of raising it through taxation, it is likely that a more rapid inflationary effect will be felt.

    Reply
    Please complete the required fields.



  • Hey UT – thanks. With the money though they have bought assets. Based on what i have read at some point they will have to offload those assets. So far they have bought mostly relatively good quality assets.

    http://www.marketwatch.com/story/warsh-wary-of-fed-buying-more-assets-2010-06-28

    Maybe they will extend that and buy poorer quality assets. The point is i think its a bit of a tightrope. Many people may think we have turned the corner, and perhaps we have… but just maybe we havent. No-one really knows – all we can do is watch indicators and see what they seem to be saying and perhaps modify our stance accordingly… [or of course we can just stick to our opinions and never change them even though there is overwhelming evidence to the contrary – now who does that remind me of??].

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Of course house price inflation and M3 or M4 or anything else go hand in hand, because house prices are fuelled by borrowing and house prices rises beget bubbles which fuels borrowing and so on. Which one causes the other is nigh irrelevant for these purposes.

    Remember that M3 or M4 only looks at half the equation – if you minus off the corresponding amount of liabilities, the sum total of all “money” in the world is to all intents and purposes zero (i.e. the government has debts; individuals hold bonds to the same value, the two net off to nothing. If, by coincidence, every UK resident held one year’s income’s worth of UK government bonds and all UK government bonds were held by UK residents, they could just cancel the lot and give everybody a corresponding tax cut in future).

    If UK house prices halved, then this would cause about £300 billion of negative equity, let’s assume that everybody in nequity declares himself bankrupt, so that “money” is quite simply not there any more. Or the govt can continue bailing out banks to the tune of £100 billion a year (or whatever) and try and keep the bubble inflated, but that “money” just disappears into the sand once they stop bailing; house prices fall and we end up with £300 billion less “money” than we started off with, however much they spent on bail outs in the interim.

    While I find 4% or 5% price inflation and low interest rates highly irritating, what I mainly care about is that house prices are coming down, so fair’s fair.

    The same does not apply to commodity price inflation because most people don’t buy oil or gold on credit, and if they do, they usually settle the contract and repay the loan within a few minutes or weeks (you know perfectly well how this works – we could in theory abandon margins and make speculators take out a loan for the full amount of the underlying – what difference would it make in practice? None. But the M3 figure would leap every time somebody opened a trade and shrink again every time the trade was closed out)

    Reply
    Please complete the required fields.



  • 25 Mark – yes absolutely. Money can disappear the same as it can be magically created. This is what is missed by most people. Thanks!

    Recap : also moveable [which i am!]

    Reply
    Please complete the required fields.



  • There are essentially two forms of inflation:

    A benign inflation that broadly tracks changes in per capita GDP

    – and a pernicious inflation that arises from currency debasement

    When an economy is growing one should expect some commensurate inflation, and if it contracts, one should not be surprised, or particularly alarmed, to see a little attendant deflation – the reversal of inflation past.

    QE has offset the natural deflation from recent economic contraction, but it is still a debasement of currency that neither the US nor the UK has the funds to reverse.

    – They must not do any more..

    Reply
    Please complete the required fields.



  • Dear techieman,
    In this thread, you just seem to be mixing lots of things up and getting yourself in a real muddle.

    Perhaps you should try to avoid carping on about the judgements of others – which you clearly do for no other reason than to make yourself look superior, hence your hollow 42k boasting. Moreover, I think you should try to step back and look at the wider perspective – and not just your own vested interests.

    I will try, once again, to put this into it’s VERY simplest terms.

    1. Rapid decrease in credit follows HUGE rapid expansion. Deflationists have forgotton about the expansion as it doesn’t always suit their argument; they attempt to maintain some kind of equilibrium by maintaining the same large levels of expansion. It’s becomes clear that this might not be possible.

    2. Fear of another great depression and prices falling – not really an issue in a fiat system – led the FED in America, & BOE in the UK, to create trillions and trillions. In the 1930’s America was tied to the Gold standard; politicians can’t create gold from nothing so money effectively dried-up – that’s NOT the same as what is happening today.

    3. A FLOOD of money finds it’s way into a number of investment activities, and amounts also seep into the wider economy. A significant amount still sits in banks. People like Techieman make a little bit of money – due to the opposing forces of the ”real” market and the inflated ”false” market – these people convince themselves they are genuises and know everything.

    4. Some asset items devalue, most asset items slowly increase in price.

    5. Over time, the money sitting in the banks continues to seep into the wider economy, inflation continues to increase.

    6. FED paranoia about deflation continues and they carry on creating trillions and trillions of new money.

    7. Failure to get the right balance – and fear of undercooking the hot-pot – means the FED overshoots causing hyperinflation. FED not really concerned as it helps with paying off the debt.

    Reply
    Please complete the required fields.



  • Thanks HPW

    I have no vested interest one way or the other. I trade what i see not what i want to see. I have already apologised about the £42k – as you well know – i can admit to being wrong, its actually the most important thing you learn. In any case does that matter? – i could have said £4k or £420k – i could have made up anything if i had wanted – not that it was made up! And you do know why i posted that because, lets face it you were being a bit of a pr8t. Im not really sure why that would wind you up so much anyway – let it go! i told you i had an unrealised loss of £58k yesterday to ease your pain but that doesnt seem to have worked.

    Not superior at all – just like to see reasoned argument, i can certainly agree with some of your points actually. However it strikes me as just plain dumb that when someone remarks about M3 someone else decides to post a chart of the monetary base. [btw am never going to agree on 2 – the not an issue in a Fiat system (you keep saying that bit dont explain why) – but you are of course entitled to your opinion and me mine]. Of course we all have much to learn and everyone can be right or wrong, thats why i like to read MWs comments and UTs and Flash and a few others. Hey i might not agree but they at least address the issues and put forward thought provoking and coherent arguments.

    If you want to explain how falls in M3 are consistent with inflation then i am all ears, but to just put up as chart of the monetary base just shows a lack of knowledge of the difference (as you have probably realised – although you really cant bring yourself to admit that was wrong).

    If you wanted to support your argument by arguing that there is still expansion in M0 or M1 or even M2, and the contraction in M3 makes no difference, then that would be fine, in my view wrong but fine – Mark has explained why M3 is the issue. It is simply that credit is by far and away the biggest component of money so the printing of money (to pay for assets) has to thwart the contraction in credit, to maintain a status quo (at least), or thats my understanding, which may be incorrect.

    Maybe the contraction in credit will be reversed, maybe the markets will rocket – as i said no one knows but you have to look at indicators and those do not support hyperinflation. One day though you may be right and they may do.Maybe the Fed does overcook the pot or maybe its undercooked – M3 shows that (admittedly in part).

    In the meantime just don’t post a chart of oranges only when we are talking about apples and oranges …it aint big and it certainly aint clever… getit?

    Reply
    Please complete the required fields.



  • TC – “Fag time”: i thought you went to state school?!?

    Reply
    Please complete the required fields.



  • [btw am never going to agree on 2 – the not an issue in a Fiat system (you keep saying that bit dont explain why) – but you are of course entitled to your opinion and me mine]. Actually ok you have explained your view, that money is not not supported by gold anymore. Fair dues.

    but we live in a credit environment, hence my comments. Credit dwarfs money. i dont want to keep repeating myself. I see your reasoning but disagree with it. Perhaps you will think thats a VI ? Im not sure i understand in what way i have a VI though but ok!

    Reply
    Please complete the required fields.



  • TC so “Fag” was ambiguous – in more ways than one!

    Reply
    Please complete the required fields.



  • @TC
    ” I do think there is a very real risk of Hyperinflation because we are in what I believe is a deflationary spiral ”
    That seems contradictory to me, unless you mean that we will have a deflation first, which cripples the economy, followed by an inflationary spiral when, too late, they try to reflate and capacity has shrunk?
    On Bank of England latest available figures (april 2006, when they stopped publishing M0), narrow money was just 3% of the money supply. Around that time M4 and M4L were both shooting vertically skywards.
    Now we’ve just had a major corrective event (the budget) in the housing market, at a time when FTBs have disappeared. The housing market accounts for around 60% of the UK money supply.
    Perhaps I’m being naive, but someone please explain why we are NOT in a deflationary environment. You could cite some positive inflation numbers, but it won’t do because these lag the driving force, which is the stock of credit.
    Nick

    Reply
    Please complete the required fields.



  • Sorry HPw didnt read that properly:

    “People like Techieman make a little bit of money – due to the opposing forces of the ”real” market and the inflated ”false” market – these people convince themselves they are genuises and know everything.”

    Well for a start i am a position trader and have been mostly (re stockmarkets) playing on the short side. I used to do both but cant be bothered anymore.

    “A little bit of money” – nope surely you mean tiny little bit or maybe an insy wincey bit. You do realise that the £42k was for 10% of my position didnt you? (btw still losing approx £50k unrealised) on the FTSE – was nearly at £10k yesterday but easy come easy go!

    Know everything? Nope but i do know the difference between M3 and the monetary base.

    NICK – this is a US thread.

    In any case HPW has explained it all @ 30 – jeez are you dumb or something??? 😉

    Reply
    Please complete the required fields.



  • @techie
    Yes, I’m pretty dumb. I read 30 and was none the wiser…
    I am more interested in what happens here. Seems to me that there would have to be a truly massive money printing operation to counteract a serious credit contraction. Given that all G20 economies seem to be implementing austerity budgets at the same time, that is what I would expect to see.
    Nick

    Reply
    Please complete the required fields.



  • “@techie
    Yes, I’m pretty dumb.” You and me both … HPW has the monoploy on wisdom…. god i bet he’s good at everything too …. and a big hit with the laydees.

    Reply
    Please complete the required fields.



  • 38. techieman said…”A little bit of money” – nope surely you mean tiny little bit or maybe an insy wincey bit. You do realise that the £42k was for 10% of my position didnt you? (btw still losing approx £50k unrealised) on the FTSE – was nearly at £10k yesterday but easy come easy go!

    Reply
    Please complete the required fields.



  • Sorry Le Crunch – you are not posting in real time. OK i will replace my bookmark of when you last called for a continuing $ collapse – immintent last qtr 2009. With this new one – i see within 10months – for which i will give you an extra 6. By then i might go someway to agreeing with you but i think the greenback appreciates a fair bit first. So we are talking about a collapse from these levels within 16months or a collapse from higher levels within 16months…. just want to make sure i understand and not misquote you. And what is a collapse? 20%? 50%? 99.99999% and against what NDX? Euro? GBP? Gold?

    Fair? Im trying to Keep it Simple I really am…

    Reply
    Please complete the required fields.



  • 41. techieman

    You just can’t help yourself can you, calling a collapse of the world currency when I did should be enough for anyone.

    I hope my other post gets through to you.

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>