Who buys the "Long term deflationary spiral"?

Discussion in 'Economics' started by scriabinop23, Dec 25, 2008.

  1. Post your reasons why - using data to support your argument, not hearsay. Additionally, contribute why you believe money supply increases are immaterial. If you plan on using Japan as an example, use real data of money supply and stimulus to support your point.

    Long term = 5-10 years, for this argument.

    I am interested to see if anyone can come up with a convincing thesis from anything more substantial than an emotional gloom point of view that tends to self reinforce in times like this. ie if you assert credit will never recover, give examples in the past where credit issuance languished for long periods.
  2. nobody knows for sure.
  3. You can't "Who buys the "Long term deflationary spiral"?

    Because if people are buying there will be no deflation.

  4. I think its a function of available money and credit combined, times the velocity of it, or total spend.

    The money supply has increased, so that must not have caused it.

    Consumer credit has declined a small amount in the last month, but its up year on year, so I don't think it declining is the big cause.

    Maybe its that money supply and credit isn't increasing like it usually is?

    Or maybe the money is just sitting in accounts not being spent? ie velocity has dropped?

    Are you:
    1. borrowing to buy anything recently?
    2. buying anything major lately that you don't absolutely need?
    3. cutting back on expenses?
    4. afraid you might get a pay cut or lose your job?

    I think most folks would give negative responses to all those questions lately, and therefore I'd suggest if they have money, they are sitting on it, and if not, it doesn't matter because credit has tightened to where they can't get it if they need it.

    Credit and money supply figures are avail from the federal reserve site. I don't know anywhere to find data on the velocity.

    I think the problem continues until the trade deficit ends because as long as we run the big trade deficit, we either have to sell them our assets or borrow the difference, and now that they are no longer willing to lend to our people, states or corporations, its just a matter of time before they are no longer willing to lend to our federal government.

    I think devaluing the dollar would help, but not sure how to quantify that because we import so much.
  5. Velocity is an afterthought, a result of dividing money supply into GDP. It is economic activity in real terms.

    I'm getting tired of hearing the likes of Mauldin spinning their velocity theories. Either economic activity in real terms slows down or resumes.

    One thing is certain: the powers that be aren't happy with banks not lending considering what we've invested, so I am not certain that will continue (for simply the point we won't stand idle and not stimulate).
  6. Until banks wash excess debt off their books there is no capacity to advance.

    ie take one part of consumer credit .... the excess has landed on the banks books through visa and mastercard, and as fast as banks are reloading it is being washed away.

    The path to inflation, if it exists, lies through the jaws of deflation.
    This journey will not be smooth and can be arrested at any moment.

  7. Japanese Yen 1990 to present.
  8. They might not be HAPPY with it, but the reality is that I think if you look around, you'll find that those who still have good credit after the topping of this credit orgy, have good credit because they don't borrow, and those who are looking for credit are mostly those who the banks consider only marginally able to repay in a recessionary environment, so they are afraid to lend to them. The same goes for lending money to corporations. The few companies they'd want to lend to probably don't need the cash, just the guarantee of being able to get cash if they needed it.

    I hear all sorts of stories about banks and credit companies pulling people's and corporate credit lines, but to be honest, none of my credit cards has reduced my limits or threatened to. But then again, I have zero debt beyond whatever I charged during the month.

    But I'll tell you one thing... I'm not buying ANYTHING I don't really NEED to buy, lately. I have zero confidence that things will really improve anytime soon. If things go up, it will only be because they found a way to devalue the dollar we are measuring it in, IMO.

    Stagflation or Stagdeflation, would be my guess, if things muddle along. I have no expectation of anything better.
  9. The "real data" is that Japan stimulated like a son of a bitch and has been fighting (and generally losing) the battle against deflation for nearly 20 years now.

    Since we have an existence proof that the spiral is real, I am having trouble understanding what, exactly, you're asking.
  10. BTW, I think the possibility of a "long term deflationary spiral" would or will exist if the government stops playing borrower of last resort.

    I don't think they will CHOOSE to stop borrowing, but I think it could get to where foreigners are no longer willing to lend the US government more. If that were to happen they'd either print us into hyperinflation or let us ride it down in a deflationary spiral. I get the impression they will try to ride a fence between the two called "quanitative easing". Isn't that what it is?
    #10     Dec 25, 2008