[gt1370a]

I had thought the same thing for a while... consumers already have a negative savings rate, so when they have to pay more for energy, they have less money to spend on everything else, right? Which means demand drops, therefore prices drop; that's deflation.

However, based on what Bernanke has written, the Fed is concerned about deflation and views inflation as a favorable alternative. He said you could lower interest rates to encourage spending (discourage saving). However, if you lower them to zero (or if people are already spending above their limit), he mentioned some other radical options including the quote about dropping money from helicopters, negative interest rates, and even outright government purchases to create artificial demand. The problem with deflation, the way he sees it, is that people won't buy things if they expect the price to be lower in the future, so as long as prices keep dropping people won't spend and you have a vicious cycle - the key is to break that pattern and get people spending again.

It will be interesting to see how it plays out. They managed to have a stagnant economy with inflation in the 70s, I guess it could happen again.

[Micki]

I think GT... is absolutely right.
Inflation is generally better than deflation as it keeps industries and business going. Inflation is also required to easily pay of the huge debts.
There is however a concern in that with the extremely poor fundamentals the inflationary path may lead to dramatically dropping US dollar and creation of hyper inflation which may end up destroying the currency completely.
Therefore they may attempt to balance the situation with raising interest rates, which may flip it over to deflationary side again.
Eitherway there will be pain.

[Starvid]

Government going in and creating artificial demand like in the New Deal could be a saving grace, especially as it have to be done anyways except the market won't touch it due to the external effects are not internalised.

What I am talking about is of course a massive program of power plant replacement. Close the fossil crap plants!

And replace them with... you know.

[EnergySpin]

$this->bbcode_second_pass_quote('Starvid', '
')
And replace them with... you know.

[dbarberic]

I think we are going to have an odd ball situation where some items are inflationary and some are deflationary.

Currently find that electronics and good manufactured in China are falling in price (and one could even argue that automobiles are falling in price too), while assets (land, houses, gold), prices for services that can not be imported from China (health care, college eduction, etc) and energy are all rising in price.

I believe that higher oil prices will continue to drive this trend as large parts of personal income are going to cover the inflationary parts of the economy, thus causing the deflationary parts of the economy to drop in price as demand falls.

[AlCzervik]

This thread has probably been done a thousand times, but I think a new one is in order. As Revi said elsewhere, WTF is going on when two rate cuts and a $41 billion load are pumped in and you still lose 362 points on the Dow? I was in the Weimar/Roccman camp until today. Now, I am leaning crash camp. Even Mogambo is waffling:

$this->bbcode_second_pass_quote('', 'I') was interrupted by an email from David K., which began with the customary salutation. "Oh, Mighty Mogambo," it read, "if you will take a moment to go to Lew Rockwell's site, lewrockwell.com, you will notice that there are two articles, one entitled 'The Fed Is Deflating' by Gary North, and the other, 'The Fed Is Inflating' by Murray Sabrin.

"My question to you is: What the French, Toast? Dr. North makes some very good points, and I agree with his conclusion. Mr. Sabrin makes some very good points, and I agree with his conclusion.

"So what in the hell is going on? Is the Fed deflating? Inflating? Indeflating?"

I immediately wondered, "Indeflating? What in the hell is indeflating?" I figured it was a secret message of some kind, so I didn't let on that anything was amiss, and replied, "Dear JMR David, They are both right! Did you think that my wife's love for me, dropping like a stone until one day I can see her, hiding behind the hedge, looking at me through the crosshairs of the telescopic sight of a .30-.30 deer rifle and smiling to herself, means that neither you, nor anyone else, cannot find true, everlasting love? Of course not! You can exult, waxing prosperous, happy and sleek, whilst I sulk and wither and die of a broken heart and a knife in my back.

"Except for the 'everlasting' part which is, of course, a big load of crap, as there is very little of an evolutionary advantage in it after the kids are big enough to be put to work hunting, begging, stealing or working, and yet still too young to legally keep you from stealing them blind, or too little to keep a crazy man bigger than them and with a baseball bat from coming over there and taking any damned thing he pleases, including not only a damned full tank of barbeque propane in exchange for my empty one, but anything else I take a fancy to, because you probably stole it from me to start with."

At this point I realized that I was getting off the track and into one of my paranoid persecution delusions, which never seem to end well. So I hurriedly changed back to the topic and continued "Nevertheless, the answer to your question is that some things will go up in price until you are squealing like a stuck pig, and some other things will go down in price until you are squealing like a pig, too", which summed it up perfectly.
http://dailyreckoning.com/Writers/Mogam ... 92807.html

[seldom_seen]

$this->bbcode_second_pass_quote('AlCzervik', 'T')ake a side and back it up, folks.

[kadoomsoon]

Exactikaly.

Couldn't have said it better.

But the second part is still coming, the total breaking of the market into little bite size pieces. This could take a bit of time with all the money pumping going on. Soom the money pumps will spit out just confetti, and the value of the dollar will go to ignorant extremes, and then everyone will begin to spend before their paycheck looses more value, then they will bring in the digital amero WHEN THE PEOPLE BEG FOR IT.

all planned.

[SinisterBlueCat]

http://www.drschoon.com/articles%5CAEFC ... lation.pdf

i have been waiting and waiting to read an article like this for a while now and now that i am reading it, it freaks me out.

but i know that i personally, have never known any other form of currency than the Federal Reserve/USD and so i can see how it, in its physical form, would retain its popularity even as everything else was melting around it.

anyone have any thoughts to add?

[roccman]

Inflation + deflation = stagflation (think 70s style)...

It is the worst of both worlds...and it is headed towards a neighborhood near you...

Unemployment 30% +

Interest rates upwards of 25%

Boots today at walmat $19.95 will be $85

Gold $5000.

Cheers.

[SinisterBlueCat]

no roccman, not stagflation, this is different....please read the article. i would be interested in your comments on this article.

[kadoomsoon]

Thank you very much for that article, maybe the E-dollar will be the cause of the collapse instead of a solution for it.

[kadoomsoon]

$this->bbcode_second_pass_quote('roccman', 'I')nflation + deflation = stagflation (think 70s style)...

It is the worst of both worlds...and it is headed towards a neighborhood near you...

Unemployment 30% +

Interest rates upwards of 25%

Boots today at walmat $19.95 will be $85

Gold $5000.

Cheers.

[EnergyUnlimited]

$this->bbcode_second_pass_quote('roccman', 'I')nflation + deflation = stagflation (think 70s style)...

It is the worst of both worlds...and it is headed towards a neighborhood near you...

[EnergyUnlimited]

$this->bbcode_second_pass_quote('SinisterBlueCat', 'h')ttp://www.drschoon.com/articles%5CAEFCanWeHaveInflationAndDeflation.pdf

i have been waiting and waiting to read an article like this for a while now and now that i am reading it, it freaks me out.

but i know that i personally, have never known any other form of currency than the Federal Reserve/USD and so i can see how it, in its physical form, would retain its popularity even as everything else was melting around it.

anyone have any thoughts to add?

[peaker_2005]

$this->bbcode_second_pass_quote('EnergyUnlimited', '')$this->bbcode_second_pass_quote('SinisterBlueCat', 'h')ttp://www.drschoon.com/articles%5CAEFCanWeHaveInflationAndDeflation.pdf

i have been waiting and waiting to read an article like this for a while now and now that i am reading it, it freaks me out.

but i know that i personally, have never known any other form of currency than the Federal Reserve/USD and so i can see how it, in its physical form, would retain its popularity even as everything else was melting around it.

anyone have any thoughts to add?

[Bas]

Interesting info and thesis. Still, it's just that; as long as I can pay in the store with a card this will not happen; and if one store stopped accepting e-dollars/euro's they would lose a whole lot of business to the store next door. The dollar/Euro may become next to worthless in the future, but most probably the electronic and banknote versions will be equally worthless.

Moreover, this inverted pyramid, while a useful tool for visualizing is to an extend arbitrary; it's quit logical to interpret the shift from electronic dollars to banknotes as horizontal devolution rather than vertical devolution; it's the same thing, just in another form.

In a way even, you could say the writer is throwing sand in our eyes by suggesting we hoard banknotes, rather than buying silver/gold. (I'd suggest silver, easier to trade with, and most likely to rise much faster in percentage terms than gold in case of a fiat currency collapse.)

[Twilight]

I have been wondering about what happened to Wells Fargo's ATM (and other electronic transfer) problems earlier this autumn. Their systems and all backups "glitched" for four days? Yeah, right. Someone wasn't playing ball, I think.

[SinisterBlueCat]

$this->bbcode_second_pass_quote('Bas', '
')
In a way even, you could say the writer is throwing sand in our eyes by suggesting we hoard banknotes, rather than buying silver/gold. (I'd suggest silver, easier to trade with, and most likely to rise much faster in percentage terms than gold in case of a fiat currency collapse.)

[I_Like_Plants]

It's going to be a tough race ....

Deflation happens when dollars are destroyed faster than the printing presses can crank them out.... an example is millions of US homedebtors walking away from their unpayable loans.

Inflation is if the printing presses are gaining.

Any ideas on this? We've been seeing inflation in food, gasoline, etc. But I think this may not last. One thing Ron Paul may do if elected is do away with a lot of central planning including the federally mandated minimum wage. This will be a hugely deflationary move, since people will be free to negotiate pay, so a grandma who's paid to just sit and knit in a bookstore may be perfectly happy to work for $3 an hour. Someone working for a skilled carpenter or plumber may be happy to work for $1 an hour because they want the training and the $8-$10 a day they'll get pays for lunch and a few bux to take home.

Many in the underground economy work for very low wages, but still get enough to meet their needs (if not wants) or they'd not do it.

Another thing elimination of the min. wage will do is greatly accelerate the self-deportation of illegals in the US. This I think we can all agree is a good thing.

And then there's my own case - by the time the userers have pumped it up, I may be responsible for $200k going poof when I do my BK in a couple of years. This is money that's showing up on someone's books, the fools are actually counting on it. No, I'm not walking away from a house, it's CC debt growing at 30-35% a year, and some rather slow-growing but still growing IRS debt. Do the math! There's a ton of this kind of debt out there, in fact it's a bigger problem than the housing bubble bust.

Thus, I think ultimately deflation will win.

Discuss!