So much for inflation (credit, purchase, sell, interest)

[Humanoid]

For the last 2-3 months pretty much every commodity has collapsed. Ironically many that recognized the housing bubble seemed to not recognize the bubble in commodities. Anyhow, some nice graphs:

Mish's Global Economic Trend Analysis: Where Are Food Prices Headed?

Deflation is going to be the talk of the town in a couple of months.

[GregW]

That is preferable to hyperinflation.

[bale002]

I agree that the trend right now is disinflationary (or deflationary, depending on the starting point for comparison), and probably will be for the next six months or so.

The question is, can the domestic US economy take advantage of this period to deleverage in an orderly fashion and somehow get into production mode?

Or is the rot too deep, is the structure too skewed, and will policymakers continue to steer the domestic economy in the wrong direction in terms of credit and consumption, and maybe on top of that bone-headed taxation?

If the policy is wrong, this potential opportunity will have been wasted and high rates of inflation may indeed ensue further down the road.

[floridasandy]

In reading a history of major depressions in the U.S. from 1830 on, these factors are present:
(a) All were set off by a deflation of excess credit. This was the one factor in common.
(b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke.
(c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.
(d) None was ever quite like the last, so that the public was always fooled thereby.
(e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
(f) Credit is credit, whether non-self-liquidating or self-liquidating.
(g) Deflation of non-self-liquidating credit usually produces the greater slumps. (this means credit for purchases like homes, cars, boats, etc., that tie into the economy for a long period of time).

i think that 6 months is a pretty optimistic overview given our current circumstances. the desire to spend might be there, but the money to spend will not.

[jimj]

Originally Posted by floridasandy

In reading a history of major depressions in the U.S. from 1830 on, these factors are present:
(a) All were set off by a deflation of excess credit. This was the one factor in common.
(b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke.
(c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.
(d) None was ever quite like the last, so that the public was always fooled thereby.
(e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
(f) Credit is credit, whether non-self-liquidating or self-liquidating.
(g) Deflation of non-self-liquidating credit usually produces the greater slumps. (this means credit for purchases like homes, cars, boats, etc., that tie into the economy for a long period of time).

i think that 6 months is a pretty optimistic overview given our current circumstances. the desire to spend might be there, but the money to spend will not.

So we've had more than one Depression? If there was more than one Depression when were they and how long did they last?

[floridasandy]

Originally Posted by jimj

So we've had more than one Depression? If there was more than one Depression when were they and how long did they last?

we have had several economic depressions in the united states. i am not allowed to copy text pages so i will refer you to one site:

http://www.sjsu.edu/faculty/watkins/depressions.html

[Humanoid]

The history of financial crisis is pretty interesting. My favorite book on the topic (although fairly dry) is "Manias, Panics and Crashes - A history of financial crises". Regardless, this book argues something similar to what was stated above (by floridasandy). Namely that financial crises tend to at least be correlated (and likely caused) with an abnormal expansion of credit.

Much has changed in the financial world since the last major financial crisis. If I had to guess I would say that we are likely to experience a Japanese like "lost decade" rather than another great depression.

But 6 months is way too short. But this is the common line now by people that were crying "hyper-inflation" a year ago. Now its first deflation and then hyper-inflation! As if that makes much sense....

[bale002]

Originally Posted by Humanoid

If I had to guess I would say that we are likely to experience a Japanese like "lost decade" rather than another great depression.

But 6 months is way too short.

My point is that with the right set of policies we can put the US back into "production mode", with the wrong set of policies, indeed, we could experience a lost decade (general stagflation, spurts of growth in fits and starts that sputter out, bouts of inflation and disinflation, technological stagnation, no great breakthroughs on energy, etc.).

"Production mode" could be measured in many ways, for example, reducing the contribution of consumption to GDP from 70% (is it really that high?) to around 61%-64% where it was in most industrialized countries in the 1980s, a visible reduction in the trade deficit, a reversal of the decline in manufacturing jobs, an increase in productivity, etc.

I too do not assign a high probability to disaster scenarios, but at the same time one cannot rule them out completely, and some preparation in that sense is not unreasonable.

The sooner the ruling class returns to some more sensible economic policies in terms of the domestic US economy, like within six months, the better, but I'm not holding my breathe.

[NewToCA]

Originally Posted by Humanoid

For the last 2-3 months pretty much every commodity has collapsed. Ironically many that recognized the housing bubble seemed to not recognize the bubble in commodities. Anyhow, some nice graphs:

Mish's Global Economic Trend Analysis: Where Are Food Prices Headed?

Deflation is going to be the talk of the town in a couple of months.

Actually, some of us did. However, getting anyone to consider your position concerning inflated commodity prices (I was targeting oil) is pretty difficult when the prices are jumping so dramatically and folks are in a panic.

I never bought into the whole "peak oil" discussion, instead I focused on the technology to create near term alternatives and the cost of doing so.

http://www.city-data.com/forum/5722509-post1.html
http://www.city-data.com/forum/5724155-post17.html

It is always difficult for folks to critically evaluate situations when involved in those environments, happens all the time. Folks (nationally and globally, not just participants in our forums) frequently overreact to current environments, making them worse than necessary. In my point of view, most panics are created by terrible leadership.

[paperhouse]

Originally Posted by bale002

I agree that the trend right now is disinflationary (or deflationary, depending on the starting point for comparison), and probably will be for the next six months or so.

The question is, can the domestic US economy take advantage of this period to deleverage in an orderly fashion and somehow get into production mode?

Or is the rot too deep, is the structure too skewed, and will policymakers continue to steer the domestic economy in the wrong direction in terms of credit and consumption, and maybe on top of that bone-headed taxation?

If the policy is wrong, this potential opportunity will have been wasted and high rates of inflation may indeed ensue further down the road.

What we have to be careful of in terms of exports is who will be buying them. Let's assume we do get some production in place over the next 6 months. If we start to sell these things (whatever it is) in the global marketplace, we have to really watch what goes to China and other dollar holders. A trade imbalance with China could mean too many dollars coming back home too fast and thereby providing the very inflation we're worried about. Any thoughts?