correct!! But expounded, "sell everything of value, then sell everything that is not bolted down, then review what's bolted down and if not abs. necessary, get rid of it too. This will give you the CASH you need to not only survive but rather because in a DEFLATION you are respecting and aligning with the fundamental thrust, i.e. CASH IS KING, the primary driver in a DEFLATION.
Self-liquidating credit is a loan that is paid back, with interest, in a moderately short time from production. This means that production facilitated by the loan generates the financial return that makes repayment possible. The full transaction adds value to the econmy.
Non-self-liquidating credit is a loan that is not tied to production and tends to stay in the system. When financial institutions lend for consumer purchases such as cars, boats or homes, or for speculations such as stock certificates, no production effort is tied to the loan. Interest payments on such loans stress some other source of income. Contray to nearly ubiquitous belief, such lending is almost always counter-productive; it adds costs to the economy, not value. If someone needs a cheap car to get to work, then a loan to buy it adds value to the economy; if someone wants a new SUV to consume, then a loan to buy it does not add value to the economy. Advocates claim that such loans "stimulate production" .. but they ignore the cost of the required debt service, which burdens production. They also ignore the subtle deterioration in the quality of spending choices due to the shift of buying power from people who have demonstrated a superior ability to invest or produce (creditors) to those who have demonstrated primarily a superior ability to consume (debtors). Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. Deflation involves a substantial amount of involuntary debt liquidation because no one expects deflation before it starts. Now guys, read the last para a few times - it is the story of the intransigent HERD.
Sounds like you have actually run a business, unlike the academic buffoon at the Fed who thinks it's all about economic abstracts. My definition of inflation - it is when you can charge more and get away with it - either because the economy is good and things are easy or because your input costs means you have to charge more and if you can't you won't sell and the buyer accepts that. Hyperinflation: When the price you charge for an item reflects a greater weight the price you will have to pay to restock tomorrow morning rather than just the price you paid wholesale this morning.
What triggers the change to Deflation? A trend of credit expansion has 2 components: the general willingness to lend and borrow and the general ability of borrowers to pay interest and principal. These components depend respectively upon (1) the trend of people's confidence, i.e. whether both creditors and debtors think that debtors will be able to pay, and (2) the trend of production, which makes it either easier or harder in actuality for debtors to pay. So as long as confidence and productivity increase, the supply of credit tends to expand. The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. As confidence and productivity decrease, the supply of credit contracts. The psychological aspect of deflation and depression cannot be overstated. When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviours reduce the "velocity of money" i.e. the speed with which money circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend.
The structural aspect of deflation and depression is also crucial. The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain - in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans - that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit. When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward spiral begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off or restructuring, or default. In the first case, no value is lost; in the 2nd, some value; in the 3rd, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estaste, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.
The next few posts, I'll mention my real life personal stance, what I've done and am doing w.r.t. the "presumed" burgeoning DEFLATION posted 11-3-09 here when brand new to ET in 2009 http://www.elitetrader.com/vb/showthread.php?s=&threadid=179613&highlight=lambda Here's what I've done, am doing ..... all simple stuff ... premise is: Cash is champion for the first time in 80 years. A total drying up of DEMAND is the environment for years any investment real estate ... adios long time ago (2006) business sold off. Will not start a new one till Depression ends. No debts for the last several years .. only a pot to _ in but its free and clear. Ditto for everythng else I have, autos (2) etc., same, same. All monies owed to me have been called in and collected. Closed BAC & other accounts at large banks. Expect all to go under. Cash stashed in multiple locations equal to 3-yr supply of emergency funds that require no access permission from any clowns. NO to expensive purchases. All items of value that I don't think we need, have been dumped already. Credit cards - only 1 and requested the limit be dropped to 5k. Minimal gold coins, mostly Yen and $. If the latter has bottomed for sure, things can only get better. Just simple stuff ...... fast forward to today, August 4, 2010 .... haven't changed a thing. Still a bum.
01-29-10 05:32 PM Greece et al are just for starters. Latvia and others too. The big fish is the UK. Bankruptcy 90% probability within 2010. US is the last stand. Tent cities galore by end 2010. Revolution almost definite. Keep an eye on the Politics and Religion forum here - whining, complaining, nagging, vitriol and hatred .... acceleration during 2010 - 2014. By mid-2011 America/ans will be far from the "benevolence" "compassion" "empathy" that we specialized in all the way to Jan 14, 2000 positive energy top. A new champion will emerge long after I/we've gone - and whoever it is, will have those same ethereal qualities. I've got no clue who it will be, but for sure we're finished. In essence its the old UK empire that's disintegrating - Britain was already crashing rapidly for years. Now America will catch up and the fall will be together. Its one giant fuckup but the BEAR is a major one. In a non trading sense hoard US Dollars - value will soar. Gold will go to $650 - 350. Personally my bet is on $ and Yen, especially on Yen for 2 years now. Its trading where the fuckup is for me. Not working for me YET. best of luck to you amigo algun dia nos vemos probablamente en la proxima vida
5-28-2010 Also note the comments on BEAR having named HIS beneficiaries in leg #1 down, namely the $ and Yen. If I'm right that the next leg down is now underway, then its clear from the rampage Yen is causing that BEAR hasn't changed a thing. Get your cash out of the large banks, hold $ and Yen, dump all others. Keep at least a 2-yr supply of hard cash on hand and defo not in any safe deposit box.
6-20-2010 So when this happens, i.e. CASH IS KING ..... meaning ALL CASH. Why? .... because we are talking value relative to goods and services. So over and above that, now factor in the international component of BEAR's 2 beneficiaries that I had identified, the US Dollar and Japanese Yen. This combo, CASH multiplied by $ and Yen is not just a 3-fer, its a Richter Scale 3-fer. This here then is the CRUX of my entire CALL since I came to ET. Oh, and about gold, don't worry, I'll have you clowns buying it at $250 and then we'll ride it to $10k together, no in and out trading, just one buy and hold. meaning gold top is so close I can smell it!!!! Shorting? forget it. Nobody's going to get paid. Best to retreat to a bear cave and enjoy the spoils of PRESCIENCE