Massive Deflation or Massive Inflation?

Discussion in 'Economics' started by Pa(b)st Prime, Apr 11, 2009.

Massive Deflation or Massive Inflation?

Poll closed May 31, 2009.
  1. Deflation

    13 vote(s)
    36.1%
  2. Inflation

    23 vote(s)
    63.9%
  1. One or the other.
     
  2. Hi Pabst.

    My take:

    1) nothing will happen for longer than many expect. probably CPI +/- 0 for 24, maybe more months.

    2) after this, accelerating inflation will kick in.
     
  3. I don't think there's a definitive answer, in terms of timetable.

    The recent bottom was determined by Government intervention (12.8 Trillion bailout).

    So to, the recovery will be largely dictated by Governments success at brokering toxic assets to private parties or nationalizing, or both.

    Once banks are cleared, normalized lending will resume on a monetary base thats exploded x multiples.

    Granted, consumers are saddled with bubble debt but it will be more debt that kicks off the resumption in normalized business activity.

    Right now, politicians are playing politics and TARP 2.0 seems to be faltering.

    I'm looking for banks to clear themselves via some type of Government program, then its off to the races, inflationary speaking.

    The ETF's for inverse T-Bills had a nice move late '08. Pull back recently, nice time to buy if one were so inclined.

    And I've heard from noteworthy sources deflation will stay longer than expected. But yea, deflation then big inflation. As to timetable, its all political at this point.

    My 2 cents.
     
  4. Simple speak....


    Once upon a time there was a $70 Trillion economy....on paper....(legal agreements).
    All goods and services were priced with $70 Trillion....

    Over $30 Trillion was lost....

    ........................................................

    The next phase....
    $40 Trillion is left to price the goods and services that used to be priced with $70 Trillion....

    Deflation ....to the tune of 40/70....

    .......................................................

    The Fed provides $12 Trillion....
    Does not replace $30 Trillion.....

    Now Deflation still....52/70....
    ......................................................

    Recovery assumes that the bigger part of what was lost....will come back....

    The previous being 70/70....
    The Fed now struggling politically
    at 52/70....
    ...................................................

    Inflation comes back.....assuming the economy recovers to something bigger than 70/70....
    ................................................

    And this is with additional Fed debt at record levels....
    ...............................................

    This is a catch 22 position....

    What was wound up by the Fed....will be wound back down....
    ......................................................

    Added value must return....ie manufacturing base recovery....
    ......................................................

    Inflation to those who came in at 40/70 prices....if >40 recovery....

    Flat to those at 70/70 prices....

    .................................................

    If economy to 90/70....Fed does not unwind....then Inflation to those in at 40/70 and 70/70 prices....
     
  5. Agree with most opinions here BUT there is one thing missing for us to get an inflation (either now or later) - that is the willingness of people to borrow. And I don't see right now how this can be fixed.
    In fact the only way of fighting deflation is to increase government spending since government is the only borrower left in sight.
    The problem with this one is timing (at least two-four years needed IMHO) and the fact that big government involvement in economy makes it (the economy) much less effective and efficient.
    Bottom line is:
    The fact that inflation will most likely come from government borrowing and spending (as opposed to private sector borrowing and spending) will make things so much worse. Ineffective economy with inflation is the best definition of the 3-rd world country I can think off.
     
  6. S2007S

    S2007S

    Inflation is going to the major problem,

    Anyone who thinks otherwise is a fool.

    The fed is artificially creating inflation to help spur economic growth, how this is possible with an economy falling apart is beyond me. Anyone who actually believes we can spend our way out of this crisis and begin anew is really going to be quite surprised when in the very end it will show up as nothing but a struggling economy trying to create wealth by printing money that will be totally worthless.
     
  7. I'd say a slow 10-20 year period of anemic G7 economic growth as debt is paid down, credit contracts, excess production capacity is being consolidated, household and corporate balance sheets are being compressed in a decade-long healing process. US 10 year annualized real GDP and CPI inflation << 2%.

    That'd be the optimistic outlook.

    I don't know about "massive" deflation. 1930s was "massive"; Japan was/is a very slow deflationary process.
     
  8. ammo

    ammo

  9. clacy

    clacy

    I tend to agree. I just can't see massive deflation with all of the spending. And I can't see massive inflation with the paradigm shift in spending habits that has taken place, anti-growth governmental policies and higher taxes.
     
  10. as noted previously on this site, biflation is the correct term to use for possible changes in prices

    ask yourself what happens when the unemployment number increases; one of the things that happen is that the number of people who find it hard to pay their bills including their utility bills on time, increases, also the consumption rate decreases, but since companies in the energy sector and water have a monopoly over the region they offer their services to, they increase or are forced to increase the bills and everyone is forced to pay the bills regardless of the increase

    inflation is a byproduct of paper money, when the amount of money in circulation increases, you see inflation in almost all prices, when the amount of money in circulation decreases, you see inflation in the price of basic needs, like food, water, rent and in the price of products and services controlled by a monopoly, like education, public transport

    just google "rise in tuition", or check google news, something like that

    [​IMG]

    another chart

    [​IMG]

    and an article worth reading

    http://www2.hernandotoday.com/conte...ral-budget-would-increase-utility-bills/news/
     
    #10     Apr 12, 2009