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The coming deflation
mullokintyre
post Posted: Apr 23 2020, 10:33 AM
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In Reply To: nipper's post @ Apr 23 2020, 09:53 AM

And it will be a massive problem for governments relying on inflation to allow the level of debt they have to be paid back with inflated dollars.
Governments also rely on inflation to assist with bracket creep and allow them to rake in more dough.
Mick



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nipper
post Posted: Apr 23 2020, 09:53 AM
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this time it's actually coming.

Australia’s inflation has been dipping below target for months, but it now looks like inflation is reversing altogether, even just for a period.

QUOTE
[“In terms of inflation, we are also expecting a significant decline in the June quarter. The large fall in oil prices, combined with the introduction of free childcare and the deferral or reduction in some price increases mean that it is quite likely that year-ended headline inflation will turn negative in June,” RBA Governor Philip Lowe said.

“If so, this would be the first time since the early 1960s that the price level has fallen over a full year. In underlying terms, however, inflation is expected to remain positive.”]


The interesting thing will be the skew of components. Some parts of the economy ticked along (staples) but others have fallen in a heap. Petrol prices have dropped considerably, and consumption patterns must have altered dramatically. Purchases are likely to be deferred because of job uncertainty / unemployment; the likelihood of deflation may see more deferrals.


While price falls might seem like a good thing for the hip pocket, it’s a general sign that things are going badly, any signs of broader macroeconomic collapse that will ultimately be bad for everyone.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
joules mm1
post Posted: May 20 2014, 11:11 PM
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29m

QUOTE (SoberLook.com ‏@SoberLook )
Chart: German PPI below expectations and firmly in the red -





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. . . . . . . . everything has an art.....in the instance of the auction process, the only thing, needed to be listened to; price

Said 'Thanks' for this post: wren  
 
joules mm1
post Posted: May 16 2014, 01:18 PM
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Thursday, May 15, 2014

Swiss deflation

QUOTE (SoberLook)
While the Eurozone is concerned about disinflationary pressures, Switzerland is dealing with outright deflation. Persistently strong Swiss franc and weak economic growth in the euro area are putting downward pressure on prices.



SoberLook link



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. . . . . . . . everything has an art.....in the instance of the auction process, the only thing, needed to be listened to; price

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joules mm1
post Posted: May 15 2014, 06:54 PM
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real numbers make a diff ...i know, everyone wants to be a journalist...lol

http://blogs.wsj.com/moneybeat/2014/05/15/...LatestHeadlines



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. . . . . . . . everything has an art.....in the instance of the auction process, the only thing, needed to be listened to; price
 
wren
post Posted: May 15 2014, 03:52 PM
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In Reply To: flower's post @ May 15 2014, 03:05 PM

"With several years of an effective interest rate structure of MINUS 2.5% the only end result possible is inflation, and eventually that will come about in spades."
It must be satisfying to be absolutely certain about such complex matters.There are some very smart folk out there who don't have access to your infallible crystal ball,so they are not able to be as certain as yourself.Perhaps it is the N.Y.and London air as opposed to that breathed in Margaret River which is clouding their otherwise fine minds.

As explained to you previously,the Swiss franc had negative deposit rates for years and this was not associated with inflation nor with currency depreciation.Still,never let the facts get in the way of a good story.

 


nipper
post Posted: May 15 2014, 03:25 PM
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In Reply To: wren's post @ May 15 2014, 12:15 PM

QUOTE
"Interest rates are going to stay low more than people expect and more than the forward curve is predicting," said Jamie Dinan, founder of $US23 billion New York based hedge fund York Capital Management.

Mr Dinan said that low rates reflected the difficulties policymakers in the United States and Europe are experiencing in stoking growth and inflation, despite measures such as near-zero interest rates and quantitative easing.

"The two biggest economies in the world – the US and Europe – can't create inflation. It's been under 1 per cent for more than six months in Europe and in the US we have had a spigot for the last couple of years and we can't get rates to 2 per cent," he said. "Now we are taking out the stimulus, our taxes are going up and our demographics are ageing. All these things are deflationary. There are inflation is certain goods but its not broad based, its just those on the top of the economic scale spending on things they want to own," he said.

The risk for Australia, the US and much of Europe is that as the baby boomer generation ages, and birth rates stay anchored, that it opens up a skills and labour shortage - which means less people spending and buying assets.

It's an issue recognised by many bond market experts, including Blackrock's head of fixed income, Steve Miller, who believes that global rates will have to stay lower for longer.

"In this era we are more worried about deflation rather than inflation. Part of that is an ageing population story, if people aren't working the supply side is simply not there," he said. "The US 10-year bond yield is at about 2.55 per cent and by year end that may head back up toward 3 per cent, while the Australian 10-year bond yield should outperform the US because monetary policy in Australia is going nowhere any time soon. I suspect we will stay around where we are now and the US will drop off a bit in bond terms."

The strong performance of bonds in 2014 as the 10-year rate has fallen from 3 per cent to 2.5 per cent has caught many investors that were betting on US Treasury rates to rise as the US economy showed signs of recovery.

Meanwhile the yield on 10-year Australian government bonds has fallen to a nine-month low of 3.8 per cent and are down around 10 per cent for the year to date.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
flower
post Posted: May 15 2014, 03:05 PM
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In Reply To: Livas1's post @ May 15 2014, 11:58 AM

QUOTE
The new Fed chair told the Economics Club of New York, “The FOMC strives to avoid inflation slipping too far below its 2 percent objective because, at very low inflation rates, adverse economic developments could more easily push the economy into deflation. The limited historical experience with deflation shows that, once it starts, deflation can become entrenched and associated with prolonged periods of very weak economic performance.”


With several years of an effective interest rate structure of MINUS 2.5% the only end result possible is inflation, and eventually that will come about in spades.

The FED/FOMC do not seem aware of the end effect of their past interest policies, especially since they don't declare meaningful inflation figures month by month, they cannot go on tweaking the birth/deaths model for ever to achieve an "acceptable/declarable" monthly statistic. Just as they did not see the last US housing crisis coming.



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Combining Fundamental comments with Fundamental charts.
 
wren
post Posted: May 15 2014, 12:15 PM
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In Reply To: Livas1's post @ May 15 2014, 11:58 AM

Interesting post.
Agree that history supports some,but not all the views expressed.Many companies did well during the 30s.However,high debt outfits have the problem of repaying fixed debt with more valuable dollars.Obviously this also applies to individuals.During the 30s,anyone with a job lived a good life.Bars and movie theatres boomed.
While the lower paid (as long as they have a job) can afford more toys during deflation I believe that in Japan there has been a prolonged culture of not spending today because tomorrow goods will be cheaper.This seems to be skipped over in the post.The post also skips over the deflation of US house prices and its consequences.Could that happen here?Sure could, imo.
Lots to talk about!

 
Livas1
post Posted: May 15 2014, 11:58 AM
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Funnily enough this came through this morning from one of those spruiking emails that we all have signed up to at some stage in the past but just never get around to unsubscribing smile.gif


The Scary Deflation Monster: The Fed vs. Prosperity

Janet Yellen may be the new monetary sheriff in town, but she harbors the same old phobias her predecessors had—a fear of the scary deflation monster.

The new Fed chair told the Economics Club of New York, “The FOMC strives to avoid inflation slipping too far below its 2 percent objective because, at very low inflation rates, adverse economic developments could more easily push the economy into deflation. The limited historical experience with deflation shows that, once it starts, deflation can become entrenched and associated with prolonged periods of very weak economic performance.”

This irrational fear that prices will fall and won’t be able to get up is repeated often by Keynesians, who believe consumers will destroy aggregate demand by waiting indefinitely to buy at lower prices. In turn, lower profits will cause companies to cut expenses by laying off employees. This all leads to a downward spiral impervious to central-bank machinations—think “pushing on a string” from your Econ 101 class.

This mindset is wrongheaded at best and dangerous at worst. Profits are the difference between the price it costs to produce a good and the price that good is sold for. As economics professor Jörg Guido Hülsmann makes clear in his book Deflation and Liberty, “In a deflation, both sets of prices drop, and as a consequence for-profit production can go on.”

Lower prices increase demand; they do not reduce or delay it. That’s why more and more people own flat-screen TVs, cellphones, and laptops: the prices of these goods have fallen, and people with lower incomes can afford them. And there are a lot more low-income people than high-income people. This is not something to avoid at all costs—it’s called prosperity.

Lower prices don’t mean lower profits; nor do they mean employees will be laid off. More demand for a good or service means more employees are needed to produce those goods and services. “There is no reason why inflation should ever reduce rather than increase unemployment,” professor Hülsmann writes.

He goes on to point out that only if workers underestimate the amount of money created by the central bank and therefore reduce their real wage-rate demands will unemployment be reduced. “All plans to reduce unemployment through inflation therefore boil down to fooling the workers—a childish strategy, to say the least.”

“Deflation is one of the great scarecrows of present-day economic policy and monetary policy in particular,” Hülsmann says. It seems a nation will destroy its finances battling a non-threat.
While the monetary mandarins lie awake at night worrying about lower prices, since 1971—when Richard Nixon cut the last tether of the dollar to gold—the effect of creating more money (inflation) has showed up in exponentially higher prices. A gallon of gas was 36 cents in 1971. New-home prices averaged $28,300 that year. A dozen eggs was 53 cents. The Dow Jones Industrial Average vacillated between 790 and 950.

The average home price today is $334,000. Eggs cost $2.06 a dozen. Regular gas goes for $3.75 a gallon, and the DJIA is north of 16,700 as I write.

However, Ms. Yellen is not only not alarmed by these price increases, she wishes them to be greater—to the detriment of the average person.




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