2009 contraction + inflation

Discussion in 'Economics' started by fearless9, Jan 5, 2009.

  1. If the FED together with the new admin manage to navigate the current minefield of deflation, could it be that US will be looking at a contracting inflating economy.

    I know that this is a contrary situation but it is a brave new world and all things are possible.

    I imagine that the price for contraction/inflation will be falling living standards not to mention a dollar that will out perform all other currencies in the race to the bottom.

    On the other hand I may be entirely wrong

  2. IMHO you are onto something.

    Here are my thoughts:

    The majority of people working in a industry that ties them down to making X (ie: any one working for a Fixed Amount) will feel the brunt of what you are talking about.

    Contraction with Inflation. Thus, their standard of living will drop but the cost of "living" will rise. The majority of American's will be working harder just to make it at Poverty levels.

    Real Wages will not continue to increase, Inflation will increase in food and energy, and the dollar will be far weaker.

    Savings rates will increase but interest paid on those accounts will not allow Savings to outpace Inflation.

    All this while contraction hits the majority of Industries and unemployment numbers settle in around 12% -14%. This will be a consistent number for the next decade.

    The contraction may slow in 2010 or so but inflation will pick up pace.

    Job growth may not pick up in 2010.

    It's gona be a mess if your not in the right spot IMHO.
  3. Unemployment has been at 12% even before the financial crisis hit. It's going to reach 20%, but of course, it will be under-reported.

    Credit is cut out from most, yet money supply is growing astronimically. Most people will save, which is the trap as USD will be rendered near worthless in the next few years.
  4. how should people react in the short term, to collectively defuse that trend?

    What role should take the administration?

    What global situation could influence that?
  5. I imagine that it is impossible to defuse this trend, because people can neither spend nor save sufficiently to alter the course of this trend if it comes.

    The Admin has/will adopt the role that permits this course of action to occur, since they are determined to print their way out of the current deflation and if they are successful then US may wind up on the half way line between deflation and inflation ... namely contraction/inflation (worse of both worlds)

    Globally it might take a large war, no make that a very large war to shift the focus off financial interference and allow nature to run it's course.... another bad option.

    '09 is not looking good and it is only january '05 so far.

  6. I'm not a pessimist by nature, when things were booming my advice was for people to borrow money to invest it if they had something that could beat the interest rate substantially.... now, I feel that the future problems are being underestimated. In the 1930's rural people did not suffer much, and most were rural. Urban people were the "out of work people" except for the victims of the dust bowl [does anybody realize that some government advice/ mandate, is what caused the dust bowl? I never, ever, listen to anybody in the public sector that does not have a gun pointed at me]. Nowadays, we have few people in food production and everybody is essentially urban. I would think that unemployment will be greater this time and so will the social welfare thingies that will increase the need to print more money so there 'ya go, my guess is that it won't be just inflation, it will be hyperinflation, and maybe if the credit freeze up is not really solved anytime soon it could be hyperinflation with a shrinking economy!!

    Won't businesses that want to transact something simply start lending to each other and circumventing the krappy banking system at some point?