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View Poll Results: Post-credit collapse: Inflation or deflation?
Inflation/Hyperinflation: Cash is trash 14 46.67%
Deflation: Cash is king 10 33.33%
Dunno 6 20.00%
Voters: 30. You may not vote on this poll

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Old 03-01-2008, 12:01 PM
 
Location: Raleigh, NC
9,043 posts, read 11,324,639 times
Reputation: 1383

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"Mish" Shedlock v. Peter Schiff: deflationist v. inflationist.

Incase you're realistic/pessimistic and open minded about the possibilities, here is some reference material.

Mish's Global Economic Trend Analysis: Peter Schiff Replies to Deflation Rebuttal


YouTube - Peter Schiff makes the case of inflation intead of deflation

Will cash be king or will cash be trash?

Where will gold be in all of this?

My opinion sides with Schiff. There might be a deflationary cycle when the credit collapses, but the government will continue to create so much money for public works combined with foreigners selling their foreign investments and recirculating the dollars into the global money supply, I just cannot imagine a sustainable deflationary scenario.

Optimists are welcome to reply, but I'm most interested in hearing opinions from those who side with the potential for a credit meltdown.
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Old 03-01-2008, 12:23 PM
 
62,390 posts, read 27,757,678 times
Reputation: 7866
I agree with Mish because of the following...

"Global wage arbitrage is a massive deflationary force putting huge wage pressure on US jobs. Rising unemployment will do the same. Rising unemployment will affect sales as well as prices. Prices of goods and services cannot rise above peoples willingness and ability to pay higher prices. That is a simple economic fact."

But, it's not going to be painless. Time will tell.
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Old 03-01-2008, 12:30 PM
 
Location: Raleigh, NC
9,043 posts, read 11,324,639 times
Reputation: 1383
I keep some liquid cash in my safe as a "just incase" scenario, and do not doubt a possible massive contraction of money supply in the short term. I just see it as unstable. During the GD there was massive deflation, followed by the overwhelming temptation of the government to create money to fund the New Deal causing 30+% inflation levels.

I do not doubt there will be massive deflation in non-exportable services and merchandise such as US real estate, rent, housekeeping, lawyers, accountants, architects. I just find essential services/merchandise to be inflationary in nature since these can be exported (electricity, oil, food, etc) and Mish forgets about China's ability to stop exporting goods to us. That decrease in supply of goods dilutes the value of money.

Last edited by ViewFromThePeak; 03-01-2008 at 12:42 PM..
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Old 03-01-2008, 01:11 PM
 
Location: Central CT, sometimes NH.
3,255 posts, read 4,908,347 times
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Wages are stagnant yet food and energy are increasing substantially cutting into the incomes of especially the bottom 3 quintiles. The 4th quintile will be employed in areas where wages probably keep pace with other costs while the top 20% will probably benefit the most in the short-term from lower capital and labor costs. However, IMHO even the top 20% will be hurt in the long-run if the bottom 60% doesn't have some disposible income to spend on nondiscretionary items.
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Old 03-01-2008, 01:37 PM
 
Location: Socialist Republik of Amerika
6,212 posts, read 11,451,774 times
Reputation: 1101
Quote:
Originally Posted by Lincolnian View Post
Wages are stagnant yet food and energy are increasing substantially cutting into the incomes of especially the bottom 3 quintiles. The 4th quintile will be employed in areas where wages probably keep pace with other costs while the top 20% will probably benefit the most in the short-term from lower capital and labor costs. However, IMHO even the top 20% will be hurt in the long-run if the bottom 60% doesn't have some disposible income to spend on nondiscretionary items.
Crime is already on the increase. Showing the pressures on the 60%. It will be a back breaker to local and state economies. In Oregon the cost of incarceration alone is 10.9% of the State budget.

freedom
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Old 03-01-2008, 01:48 PM
 
Location: Raleigh, NC
9,043 posts, read 11,324,639 times
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Quote:
Originally Posted by freedom View Post
Crime is already on the increase. Showing the pressures on the 60%. It will be a back breaker to local and state economies. In Oregon the cost of incarceration alone is 10.9% of the State budget.

freedom
This is why I believe inflation or God forbid hyperinflation will take hold. These public works projects to keep the population under control by increased size of prisons will cost a lot of money from the federal budget. You could reduce the cost by building large internment centers or concentration camps, but of course that is extremely controvesial and feeds further dissention among the population.
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Old 03-01-2008, 02:35 PM
 
Location: Central CT, sometimes NH.
3,255 posts, read 4,908,347 times
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We need a national inititative. Alternative energy development and independence could be the catalyst for our country to start be a major producer again. Urban redevelopment centered around modern transportation that is not auto-oriented could provide many domestic employment opportunities.

Time to tell the Middle East, Venezula, and others that we are not going to be your "oil junkies."
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Old 03-03-2008, 04:15 PM
 
780 posts, read 1,416,613 times
Reputation: 442
Quote:
Originally Posted by ViewFromThePeak View Post
"Mish" Shedlock v. Peter Schiff: deflationist v. inflationist.

Incase you're realistic/pessimistic and open minded about the possibilities, here is some reference material.

Mish's Global Economic Trend Analysis: Peter Schiff Replies to Deflation Rebuttal


YouTube - Peter Schiff makes the case of inflation intead of deflation

Will cash be king or will cash be trash?

Where will gold be in all of this?

My opinion sides with Schiff. There might be a deflationary cycle when the credit collapses, but the government will continue to create so much money for public works combined with foreigners selling their foreign investments and recirculating the dollars into the global money supply, I just cannot imagine a sustainable deflationary scenario.

Optimists are welcome to reply, but I'm most interested in hearing opinions from those who side with the potential for a credit meltdown.
So who is considered more optimistic the inflationist or deflationist? My old friend Mish has become a marketing machine with his deflationary thesis taken to extremes even with everything we need (outside of housing) going up in price dramatically in the past two years in the face of the greatest housing/credit meltdown since the great depression. Really, stagflation and a return of the misery index of the 1970's is the great fear. We will easily get out of the current mess if broad money supply globally continues growing at a 15% clip and US is allowed to still borrow long term at only 5% but some pain and a decline in living standards for many American's unprepared for the future. GWB's very low approval rating and collapsing dollar signal the squeeze going on the average American from all sides that is currently worse than a deflationist's wet dream of eternal doom and gloom. But this will soon pass to IMHO and Mish and others like him will be looked at as the carbon copies of Ravi Batra and his wonderful book "The Depression of 1990" rehashing the same premise again and again. We had our deflation moments in recent times around 1991 and again in 2001 IMHO..
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Old 03-03-2008, 07:11 PM
 
Location: Heartland Florida
9,324 posts, read 23,230,141 times
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Unless Government decreases drastically, I see inflation continuing to increase. It is already over 10% and may be 15% before long.
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Old 03-03-2008, 08:36 PM
 
Location: Raleigh, NC
9,043 posts, read 11,324,639 times
Reputation: 1383
I'm wondering if people are being influenced with their emotional tie to paper money as an indicator. I'm rather surprised at the # of responses to the deflation scenario.

I can also see an oscillating situation. Deflation followed by hyperinflation and the like. Money supply contracts instantly from "lost money" in credit and the government pumping tons of money to Americans who weren't prudent enough to be liquid and are literally starving in the streets.
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