In deflation savings are "KING", all else in a deflationary cycle is a killer to any capital driven system. The problem with that scenario is quite simply, how can you earn any more to save when the depression is ruining everyone else? The reason our interest rates were in the tank was because Alan greenie was worried stiff about deflation as an economy killer. With all the debt we owe out the Treasury mkts would have gone into default. The "JIG" would have been up for sure then. The low interest rates created a new bubble that is only now being reversed ever so slowly. Not the so called housing bubble, the "REAL" bubble that 'MUST" be deflated slowly is the "CREDIT" bubble... If that mama pops in a deflationary environment what would happen to all the debt out in the system?.....RIGHT, a depression, a BIG depression... Will bernanke get it right?.... ELVIS....Has left the building!!!!!! PS....Did you all thank a vet today?.....
Let's just say the Chinese were willing to work for much lower wages than us. Let's further say they were able to make GM cars, IBM computers, Dell parts, VWs and Sony equipment, and a lot of others... Due to the above, jobs are being outsourced, investments are fleeing the west to China, and local US companies are going bankrupt due to foreign competition... A higher US dollar does not help US exports, to the contrary, it fosters Chinese imports ...But, the Fed is helping the Chinese to prop the US dollar by raising interest rates... So, Joe and Schmoe lose their jobs, and there are fewer jobs around...so, if they're lucky, they land a lower paying job after quite awhile... Yeap, prices are coming down as a consequence ...people have less money to spend... Sound familiar? ...that's deflation.
The FED is raising rates to pop the "CREDIT" bubble it created with the deflation scare. The dollar is going up short term as a consequence. The yield curve is getting almost inverted, if indeed the inversion spells a recession later ....Then if the fed has rates around 5 or 6 % then they will have some ammo to fight a recession. The dollar will not stay up for long. but i just think in macro economic terms like this, not for trading, i an a short term trader of the Es and not currencies. So just a casual observer of the dollar and interest rates. Thanks...
if anyone wants to find out what the real problem with deflation is: ASK a japanese person that was a property owner once the BOJ fought deflation in japan.... Not a pretty picture for stocks and real estate.
I agree with you bighog, the gov is raising rates short-term as a "pre-emptive strike" against deflation, not inflation as they say. They need some kind of leverage to attack deflation. "Pre-emptive!"
sounds like deflation stifles investment. that stifles growth. people lay around and do nothing. what kind of life is that?
What do you mean by ...they do nothing?? If it gets pretty bad, they form groups, get guns and assault supermarkets... they hijack trucks with cattle and butcher them right there ...on the spot ...it's primal survival... That's exactly what happened to a very civilized country, Argentina, a couple of years ago... Now, they're back on track, I read... Didn't we get some of this in New Orleans?
I'm not buying any of that line... ...You see bankers don't like their loans to be repaid with monopoly money... If the USD drops, that's exactly what'll happen... Then, we need to understand a couple of things about life... The Fed is King Kong mamma banker --they control the supply of USD. Their main charter is to protect their affiliated banks... Since the beginning of times, central banks came into existence on a hoax... You see...banks were supposed to make their little money by guarding depositors money... you left your money at the bank, got a receipt, and you were charged a fee... But, banks soon enough realized they had all this money sitting around ...why not make an extra profit from lending it? So, they did ...it's the original banker's sin, you know, like the apple to Adam... For awhile ...no problema. But when the economy in those medieval times went south ...all those ungrateful depositors showed up to exchange their receipts for their money... But, alas... there was no money in the bank! As its happened ever since, bankers deceived the king and others into the need to form a central bank to save the country from these bad times, --not that the issue was that banks had hijacked the depositors money, not that the central bank's main charter would be to protect all banks under their umbrella from the depositors right to withdraw their legitimate deposits... So, banks help people (by lowering interest rates and others) when it's their best choice, otherwise they would suffer more ...it's in their best interest... they stand a better chance of collecting their loans in the future... I'm not buying any crap from bankers...
In response to Traderlivermore and "...You see bankers don't like their loans to be repaid with monopoly money..." It is Monopoly money... It works like this: Customer Z deposists $10 with Bank A. This gives Bank A $10 in reserves and loans of which $9 is loaned to Customer A. Customer A takes his $9, spends $5 of it at store A and deposits the remaining $4 with Bank B. Store A deposits the $5 with Bank C, who loans out to Customer B $4.50... Meanwhile Bank B now has $4 in reserves, so it loans out $3.60 to Customer C Customer C... So from Customer C's initial $10 deposit we have: Customer Z: $10.00 in savings/checking Customer A: $4.00 in in savings/checking Customer B: $4.50 in savings/checking Customer C: $3.60 in savings/checking Bank A : $1.00 reserve Bank B: $0.40 reserve Store A: $5.00 in savings/checking Total physical money in circulation, including banks: $28.50 from an initial $10 deposit at Bank A. Fiat currency, combined with fractional banking promote credit bubbles. We assume that a bank is concerned with it's long-term health. However, a bank executive only cares about the bank's performance during his tenure because that is what he is compensated for...not the long-term.