Make the case for delfation (loans, percentage, union, real estate)
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Some say that deflation is the biggest risk right now and NOT inflation. Those that believe this make the case for it...why do you think there could be deflation (ala Japan) when we have spent trillions in stimulus.
Well for one thing..all those trillions went to banks and other countries.
The banks have not put that money into circulation; they are trading on Wall Street with it or buying Treasuries with it..basically borrowing from the government at 0% and loaning back (via Treasuries) at 3-4%. Can't go wrong.
Had the banks used that money to flood the economy with cheap loans THEN we would need inflation to tighten up the money control and let the Fed get it back. But, that didn't happen.
Bernake is in a quandry now as inflation is how he would get those trillions back.
I do see commodities inflating though but not sure if it's because they are commodities or that speculators are playing with the futures again like they did with oil.
Kinda wacky times we live in these days. Not a typical textbook definition of inflation/deflation or what happens when you got the printing presses going 24/7 yet can keep the confidence game going that we're A-OK financially.
It seems there are many theories on how deflation might occur. Is the current situation relating to the idea of liquidity drying up? Are we not moving away from that? Is housing not at or near a bottom? Is the presumption we will suddenly become a nation of savers with no one willing to buy for fear of a better deal tomorrow? None of this seems likely to me. Quite frankly neither does inflation. I just don't see the fed holding interest rates down for long in the face of economic growth (ala Greenspan).
i am certainly no expert, i just like to think about this and try to understand it.
i generally believe that consumer credit extended to Americans is the driver of -flation. in particular, when a americans buy houses, it sets off a chain reaction of credit products that substantially increases the amount of dollars out there.
the government is the wild card in my mind. government debt is much smaller than private debt, so it will take a drastic action on their part to create inflation. i suppose in theory, the government could just print inflation. turn on the presses, give the money directly to the american consumer, don't stop until CPI rises. i don't know whether to consider something like that a realistic scenario.
As a result of recent housing, illegal immigration, general credit and consumption, and transport policies, it may be the case that the US economy has subtracted value from labor, capital and natural resources domestically and worldwide: we would have been better off doing nothing and leaving stuff in the ground (not unlike the Soviet Union), subsidizing people with simply food instead. But the US is not a spartan culture, or at least not yet.
To be sure, the above is probably an exaggeration, but it is fair to say that since the recession became full blown, prices on aggregate have not risen significantly (with some exceptions). Nevertheless, we are still here debating inflation/deflation, reflecting the fact that indeed the US economy in the past 10 years or so has not been significantly strengthened with value-adding enterprises; on the contrary, it has probably been weakened by vice of criminal enterprises, starting with the upper echelons of business and government.
In real terms, the average worker in the economy is facing a decline in standard of living. Whether this decline in monetary terms is expressed in terms of deflation or inflation depends on policy.
Right now in countries like Greece, for example, the decline is being expressed in wage cuts and probably increasing unemployment, since it has no independent currency to devalue.
Again, this point is still being debated in the US because policymakers here still haven't decided how to sugarcoat the otherwise poison medicine: odds are in favor of sharp inflation at some point, but deflation cannot be ruled out.
At the same time, we cannot rule out better outcomes either if the US undergoes a change in political and social objectives, economic policies, culture, expectations, and some timely technological advances in the sectors that need it most, mainly how to energize transportation.
My opinion is that we are going to get the worst of both. We are likely to see deflation in the stock markets, real estate markets, and bond markets--all the things we rely upon for investments and savings--while, at the same time, we see a massive amount of inflation in commodity prices (including both energy and food) thanks to inflation caused by our debt-fueled lifestyle, resource depletion, and trashing of our currency. It will be a savage one-two punch that will decimate the American middle class for most likely a couple of generations or more, and permanently reduce the material living standards of almost all Americans. Sadly, it will savage even the most prudent debt-free savers, but its special wrath will be worked upon those wracked with debt--they will be in the position that their assets will be shrinking in value and their real income will be shrinking while they will have little money to repay those huge debts.
Personally, I see only the slimmest chance that we might avert this catastrophe, and the current political climate of unlimited entitlement and unfunded government spending actually works exactly the opposite of averting the problem. Thus, I increasingly fear for the worst. What I find most disturbing is the very real possiblity that our current very faulty national character--almost diametrically the opposite of what this country was founded upon--will fracture under the stress, and that national chaos may be the result. We are absolutely unprepared in every way for the troubles that await us.
What is creating new money? Not new business or consumer loans. All that leaves is government debt and Fed purchases of securities. You won't see price drops in consumer goods because they just cull production and lose economies of scale. What we continue to see is asset deflation because its usually the catalyst for loans and new money. So I expect we will muddle by as the government creates enough new debt to keep creating money to prevent a full stop.
All I saw was deflation of the money supply which I stated in October 2008 which is exactly what happened until I also stated in this forum in March 2009 that the Fed purchases would stabilize and somewhat grow the money supply. That also occurred.
The government could cut taxes and increase deficits but the thick layer of brain washing and lack of understanding of our money system prevents this. Instead we have rock bottom interest rates which is a bank tax cut that allows them to more cheaply loan money out at interest to create money. Would you rather have the money supply increase by you keeping money or borrow it from interest to a bank? Suckers. This situation also keeps the decision making in the hands of bankers rather than consumers.
The former would have inflated the money supply to prop up the housing market and shrink mortgage debt in real terms. That is the heart of the issue.
The key to the market's reaction, however, likely rests more with the details of P&G's post-recession strategy than with peer comparisons. Here, we see that lower overall pricing reduced sales by 1%. (Of course, we already had strong indications of this development.) Furthermore, gross margin expansion of 2.9 percentage points dwindled to a 0.8 point increase at the operating line, owing primarily to higher marketing costs. In other words, to sell more goods, P&G is bringing down prices and stepping up advertising.
Location: Sitting on a bar stool. Guinness in hand.
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Quote:
Originally Posted by gwynedd1
The government could cut taxes and increase deficits but the thick layer of brain washing and lack of understanding of our money system prevents this.
Questions. Would this be a broad cross the board cut (all federal taxes)? Or is there a need to cut specific taxes while holding some others in place? Also what levels of cuts are we looking at % wise for these cuts?
Quote:
Instead we have rock bottom interest rates which is a bank tax cut that allows them to more cheaply loan money out at interest to create money. Would you rather have the money supply increase by you keeping money or borrow it from interest to a bank? Suckers. This situation also keeps the decision making in the hands of bankers rather than consumers.
The key to the market's reaction, however, likely rests more with the details of P&G's post-recession strategy than with peer comparisons. Here, we see that lower overall pricing reduced sales by 1%. (Of course, we already had strong indications of this development.) Furthermore, gross margin expansion of 2.9 percentage points dwindled to a 0.8 point increase at the operating line, owing primarily to higher marketing costs. In other words, to sell more goods, P&G is bringing down prices and stepping up advertising.
I think Mr. Pienciak analysis of the situation is on the money. I think P & G strategy is the right way to go. especially when consumers are more cost conscious now-a-days (of course this fugal mindset is subject to change at anytime.) Over the longer term the lower prices and more advertising will bring more consumers to the P & G brands, which are usually higher in quality that most competitors (which does count for something to most consumers.) This in turn most likely will create some brand loyalty to their products even if in the future P & G does raise prices somewhat higher.
The negative market reaction is typical of short sighted investors that only look at Profits and Price per share per each quarter or perhaps slightly longer than that. They just don't see the longer view of the situation. Which in the end may cost them growing their own personal profits. Of course P & G's strategy could not work and this could really hurt the company (but I doubt it.) And as the article states:
Quote:
The essential point to keep in mind is that P&G needs time to fine-tune its strategy. In terms of developed-market consumers, we likely are in a new normal, at least when it comes to everyday goods.
So we will have to see the fine tuning due course of P & G's plan over a longer term.
I don't think we can have selective deflation in certain assets like real estate and stocks and inflation in commodities..the reason being that when real estate and stocks plummet in value people spend less because of the negative wealth effect, our GDP is 70% spending and a contraction in spending will naturally lower price levels, you can't charge more for something when inventories rise because people are not buying.
Questions. Would this be a broad cross the board cut (all federal taxes)? Or is there a need to cut specific taxes while holding some others in place? Also what levels of cuts are we looking at % wise for these cuts?
Hi baystater,
Yes more or less and I would raise interest rates in reaction to any inflation. We are doing Japan all over again which was again a case of a society dominated by banks and finance above all others. Japanese buying power stayed in the tank with cheap Yen and carry trade interest income for the banks.
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