[Revi]

I am still not sure which way it will go. There are a number of things on each side that may cause inflation, such as the Fed, and there are other things that are causing deflation like the collapse of the economy in general and the huge amount of derivatives still out there that have to be paid off.

Will the Fed and other central banks be able to print enough money to get us into a real inflationary spiral?

Or will we fall back into a deflationary depression because asset prices just keep going down despite the best efforts of the money printers?

[Daniel_Plainview]

If you define "deflation" broadly to include the collapse of credit/lending, and collapse of asset bubbles (and related derivatives), then there's no doubt in my mind that "deflation" will prevail.

Definition of deflation:

$this->bbcode_second_pass_quote('', 'I')n modern credit-based economies, a deflationary spiral may be caused by the (central bank) initiating higher interest rates (i.e., to 'control' inflation), thereby possibly popping an asset bubble or the collapse of a command economy which has been run at a higher level of production than it could actually support. In a credit-based economy, a fall in money supply leads to markedly less lending, with a further sharp fall in money supply, and a consequent sharp fall-off in demand for goods. Demand falls, and with the falling of demand, there is a fall in prices as a supply glut develops. This becomes a deflationary spiral when prices fall below the costs of financing production. Businesses, unable to make enough profit no matter how low they set prices, are then liquidated. Banks get assets which have fallen dramatically in value since the (mortgage) loan was made, and if they sell those assets, they further glut supply, which only exacerbates the situation. To slow or halt the deflationary spiral, banks will often withhold collecting on non-performing loans (as in Japan, most recently). This is often no more than a stop-gap measure, because they must then restrict credit, since they do not have money to lend, which further reduces demand, and so on.

[mmasters]

Both = Stagflation.

[Pops]

Commodities dependent on energy will be worth relatively more, assets like cars, houses, stocks, bonds and by extension; jobs, will necessarily be worth relatively less.

I have no idea how "money" will react.

[Pops]

I wasn't very good describing that answer... I'll try again:

I think essentials will be more expensive and take an ever larger proportion of shrinking incomes (commodity inflation), leaving little left over for investing in assets like a 2,000sf SheetRock Shangri La or IRA (asset deflation).

Cheap energy makes essentials cheap, jobs plentiful and extravagance normal. Each of us reading this employ a couple hundred energy slaves so we are able to get more stuff than anyone, ever. It follows that fewer slaves means more expensive essentials, less stuff, fewer jobs/lower wages and the end of widespread extravagance.

"Money" will do this and that - who knows? But the facts on the ground will be McDonalds gets relatively more expensive and McMansions less so.

[dinopello]

I generally agree with pops, especially about money. But I think houses need to be in a special category too as it is location, location, location and not just the materials that it's made from. You can argue about what locations and what kind of living arrangements will inflate and which will deflate but I don't think it will be at all uniform.

[Revi]

I think it will be a combo of both. The prices of most of the things people need to buy will go up, while meanwhile the prices of a lot of big things go down. Houses are dropping, but good land seems to be holding its value. I think the economy is like a big yard sale. People are selling off anything they can, and spending it on necessities.

[dolanbaker]

Until all of that QE money is released into the wild! (it's resting in the banks at the moment)

The inflation is likely to go through the roof, the banksters final throw of the dice.

[vision-master]

Dang, sounds like I better get that new Van I've been looking at for 2.99% interest before things start getting krazy........

[dorlomin]

Slowing of the velocity of money... deflation. Destruction of the value of notional assets... deflation. Going to take a lot of printing to keep up.

[sparky]

.
The last time ( 1973\74 ) there was a strong deflation
followed by rip roaring inflation when growth returned
the jobs didn't grow but money just exploded , that was the Stagflation

I agree with a bit of both ,
I'm just not sure in which proportion , when in the cycle
and which one is going to lead the dance

My fear is a really.... really ..long deflation of more than a decade
That seems to be Mr Bernanke fear too , he is madly pumping air into a busted football

[ritter]

$this->bbcode_second_pass_quote('Revi', 'I') am still not sure which way it will go.

[evilgenius]

Seeing as how the price of things can only reflect the money that people have to pay for them I have always thought that deflation was lurking post crash. That being said there are situations where those that demand payment can extort more money, even in a downward game. An increase in the price of renting is one example of how this can go on because of the dynamic of collapsing home ownership rates. Even when there is less money per person a market with a sudden increase in participants can see price rises. The same goes for what would happen with a severe food shortage. I suppose, given this, the outlook will be determined by the length of the crisis. Peak oil has not materialized as an all out trend, rather a series of plateaus and state changes largely manifested in economic reality. Some say this is nothing but a stall. While I tend to agree I also don't rule out recovery to one level of sustainability or another. It is whether equilibrium brings a continued reassessment, much like a game of musical chairs, or brighter ideas concerning the distribution of wealth that will ultimately answer the question.

[Revi]

I think the Fed is doing everything possible to get inflation going instead of deflation. This morning's remarks by a Fed official sparked a vertical rise in silver of over a buck. Meanwhile oil is down. It's hard to tell what's going on by looking only at micro events. The bigger picture is probably asset price deflation for most people while the price of things we have to buy, or "giffen goods" going up. In the Irish potato famine the price of food kept rising because people had no choice but to buy it. That may be the way it will go with food here, and gasoline to some extent. I think it's replaceable, but most people feel they have no choice but to buy it. Meanwhile things like McMansions and boats will continue to fall, because they were things people bought back when they had money and they have almost no value now.

http://en.wikipedia.org/wiki/Giffen_good

[shortonoil]

evilgenius said:

$this->bbcode_second_pass_quote('', 'P')eak oil has not materialized as an all out trend

[AgentR11]

Its really quite simple, a per-capita physically shrinking economy, expressed in the form of an arbitrarily increasing number of per-capita US$. Creates nominal growth, without creating real physical growth.

You thus get BS like a low CPI and people being amazed at how high their fuel&food spending have risen.

Anyone note the articles on the lowest cost of living adjustment for SS in years? Do you think those seniors, who are spending a sizable portion of their income on food&drugs, think inflation is almost non-existent????

This game is just getting started.