[Falconoffury]

$this->bbcode_second_pass_quote('', 'R')emember inflation is a monetary phenomenon not higher prices due to sarcity.

[gnm]

$this->bbcode_second_pass_quote('Falconoffury', 'F')or one, the trade imbalance that the US has with the rest of the world cannot continue for much longer. Consumers are no longer able to consume beyond their means. Foreign countries will not continue to prop up the USA economically. They will wake up to the scam of getting pieces of paper in exchange for all the real goods that they export. I'm a little surprised that the trade imbalance has gone on as long and to the extent it has. This also threatens the reserve currency status that the US has with the rest of the world. Commodity prices will skyrocket simply on the fact that the US will no longer be able to import anywhere near what it has been.

[evilgenius]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', 'T')he next big thing inflation wise will probably be localized inflation brought to you by the onset of supply disruption.

[jboogy]

Unfortunately it appears as if we Americans (and many other nations) are entering heretofor uncharted economic territory with our current set of fiscal problems and conditions.

It should be clear ,to those in the know, exactly what will transpire in both the short and long term. But yet I've never heard so many wildly diverse and divergent opinions as I have recently, especially when the conversation turns to; what is to be. No one knows. Or at least those that do know are unable to have their voices heard over and above the chattering masses.

One thing I do know is you can get at least a general direction on which way the wind blows by doing and believing the opposite of what the "experts" on CNBC say. I've never seen such, either stupidity or willfull dishonesty, from any other group of talking heads before.( I confess to deriving some perverse pleasure in seeing all their little balloons bursting one after the other over the past weeks.)

My take PMS? We have something now that is either deflation or de-leveraging, (whatever that is). It's not real though, it's not a true deflation in that it is apparently mostly the result of decreased economic activity in general, as opposed to; too few dollars chasing abundant goods.

The FED has injected MASSIVE amounts of liquidity into the system, sometimes it seems as if they will never stop. The problem is the banks are "stuffing it under their mattresses", instead of putting it out into circulation. But they will have to eventually release it, if I were Bush I would be telling the banks in very plain language they had better start putting that money out into circulation, or else, ( and this may have recently happened.) The problem is that when they do unlock the credit markets with all this paper it may prove to be a cure that is worse than the disease.

Hyper-inflation, and pretty fookin' quick too. It may start a tidal wave of dollar disinvestment as no-one wants to be left holding a big bag of smelly, decomposing dollars. Some believe this is the plan, get out of debt with inflated currency, crash the dollar, start over with new currency (amero), and possibly the new world order/ one world government....tada!

[MrBill]

falconoffury wrote:
$this->bbcode_second_pass_quote('', 'Y')es, that's an important distinction to make. The money supply is very much under the control of the Fed and Treasury. The price discovery of commodities is affected by things outside of government control, though money supply is part of it.

We have a unique situation right now because we have powerful inflationary and deflationary forces fighting one another right now. We have deleveraging, and a huge amount of defaults by consumers, causing a huge amount of deflation. Credit is being destroyed, and the holders of the bad debt are having to write it off. We also have a fair amount of job loss due to businesses downsizing or going bankrupt, consumer sentiment changing to more saving than consumption, and the simple fact that the consumer is so heavily indebted, that they couldn't take on much more debt even if was available.....

[Falconoffury]

$this->bbcode_second_pass_quote('', 'A')nd a rapid 70% drop in available oil could very well lead to a collapse that would make Mad Max proud...

[MrBill]

This credit crisis has given me new insights into exactly how peak oil might affect us and society.

Over a year ago very few noticed the storm clouds on the horizon. Fewer were alarmed.

A year ago we had the first credit events triggered by defaults in the subprime mortgage market. But this was largely seen as an isolated or contained problem.

A month ago credit was still flowing. For some it was more expensive, but in general if you had sound finances it was still quite readily available.

In the past month there has been a new crisis on an almost daily basis. And a new government response almost as often. New problems have emerged where many previous saw no reason to be concerned. Credit markets seized up as banks stopped lending to each other and investors stopped buying commercial paper. Now even those that thought they had access to readily available credit are locked-out of a previously accessible market. All of a sudden this is everyone's problem not just Wall Street's.

I think this is a metaphor for peak oil. One day we will be driving along without a cloud in the sky and maybe a year or 18-months later our whole landscape changes. First with isolated regional shortages and higher prices. Then wider spread disruptions, but no reason to panic. But as the months progress we see those parts of the economy that are dependent on fuel start to seize up and affect other areas of the economy that previously looked quite immune. And then full-scale panic as gasoline and diesel or not available at any price.

I just want to draw your attention to a historic footnote of apparently little importance except how such a seemingly small event had such wide implications. I think you will find it quite illuminating. I did.

$this->bbcode_second_pass_quote('', 'T')he outbreak of equine influenza in 1872 had a pervasive effect on the economy. Called the “Great Epizooetic”, it had an effect on every aspect of American transportation. The whole street railway industry ground to a halt. Locomotives came to a halt as coal or wood could not be delivered to power them. Even the United States Army Cavalry was reduced to fighting the Western tribes on foot; their adversaries likewise found their mounts too sick to do battle. The outbreak forced men to pull wagons by hand, while trains and ships full of cargo sat unloaded, tram cars stood idle and deliveries of basic community essentials were no longer being made. The effect this disease had on the US economy should not be understated.

[PenultimateManStanding]

$this->bbcode_second_pass_quote('MrBill', ' ')
I think this is a metaphor for peak oil. One day we will be driving along without a cloud in the sky and maybe a year or 18-months later our whole landscape changes.

[Revi]

I like Heinberg's idea in Peak Everything. He feels like we are now a complex society, and like Rome we'll get back to simple. I think it will happen pretty quickly. Rome went from a functioning center of the empire to a wreck pretty quickly, thanks to the barbarians.

Quickly is 5 years or so.

I think we'll collapse into a much simpler society. We have to.

We'll all be out of a job, and will have to live a lot simpler. I don't like it, but that's the way it is.

Modern banking for example is never to be trusted again. Remember when they had big vaults with thick doors that implied that they had real valuables in there? That was to impart a feeling of trust in people. Banks are going to have to get back in the business of lending right in their area and having 10% in hard assets to back up their loans.

I think we'll adapt, because we'll have to.

[PenultimateManStanding]

There seems to be some kind of profound disconnect in the arguments of the Heinberg and Kunstler variety. They paint a grim picture and then say that we are just going to have to adapt and learn to live in a sustainable way. You can't just "scale down" this turbo-charged system with the very food we eat shipped thousands of miles by transportation firms that must have short term credit and fuel to operate. It's like gently applying the breaks to a car going 90 mph just before hitting a wall. Farmers and truckers go out of business and that's it, massive famine, chaos, war, confusion, crime, disease, the Four Horsemen. I haven't driven through Iowa, but I've seen the photos. Monoculture grains that stretch to the horizon. Argribusiness on a colossal scale. When that way of doing things is gone, you probably won't want to be among the survivors.

[JoeW]

During the recent inflationary years, we saw half-gallons of ice cream (64 oz) at the supermarket magically turn into 48 oz. containers. In deflationary times, is there any chance that we could see the size of these containers increase, perhaps as high as 80 oz? If so, when will this happen?

[Daniel_Plainview]

$this->bbcode_second_pass_quote('JoeW', ' ')In deflationary times, is there any chance that we could see the size of these containers increase, perhaps as high as 80 oz? If so, when will this happen?

[MrBill]

RE: slow versus fast collapse

okay so this credit crisis took on a life of its own very quickly and that spread into the real economy faster than anyone might have thought, but it has not been the end of society, just a new reality, and as heineken said, it is very hard to imagine things returning to the way they were anytime soon. never say never.

so likewise I can see fuel markets jamming-up equally as fast as everyone takes always on for granted, and would be quite unprepared were that to end say as quickly as bank credit dried-up. that would also usher in a new reality. that would be the beginning of the long emergency to borrow the phrase from kunstler. I do not see starvation overnight, but certainly unempoyment could shoot-up quickly as those non-core sectors of the economy are deprived of fuel.

within weeks and months there would be an effort to start rationalizing the essential bits of the economy just as governments and central banks have attempted to get credit markets functioning again. unfortunately they can manufacture credit out of thin air - even if it has a long-term cost - bu physical goods like fuel cannot be so created. that is probably where the credit crisis/peak oil analogy breaks-down, but at least it shows how quickly markets can come apart under stress.

[wisconsin_cur]

$this->bbcode_second_pass_quote('MrBill', 'u')nfortunately they can manufacture credit out of thin air - even if it has a long-term cost - but physical goods like fuel cannot be so created. that is probably where the credit crisis/peak oil analogy breaks-down, but at least it shows how quickly markets can come apart under stress.

[evilgenius]

I agree Mr. Bill, there could be a fast collapse in the liquid fuels sector. Up to now the world wide system has proven itself to be well able to shuffle the players that haven't been able to pay for things like oil off of the stage by way of the markets acting in complexity, the type of complexity that a lot of people ascribe to conspiracy theories, but actually it is far simpler than that. I never thought that complexity would be threatened itself. The truth is, it is under threat because it relies on the modern financial system to function. How will the markets seek equilibrium in the new order that is coming? Won't there be a kind of jagged match that roughly aligns or engages in further jostling between separate segments of the world economy that used to be linked by the modern financial system but in the new future will only be quasi-linked? Surely in some kind of long term backward look this period too will be seen to have conformed beautifully to the operations of the markets as operant determiners of equilibrium, but how?

[skeptik]

$this->bbcode_second_pass_quote('GASMON', '
')
EXCEPT food and domestic fuel. Food goes UP daily. Natural gas & electricity up over 25% this year. Petrol & Diesel down A BIT over the last 2 weeks, but only a bit.

Hope your right re food, but as I see it (in the UK) the essentials are getting more expensive, non esentials falling, probably due to less demand. There is never less demand for food / domestic fuel.

Gasmon

[copious.abundance]

--> Marketwatch <--
$this->bbcode_second_pass_quote('', '[')...]Investors in a subset of government bonds are betting that consumer prices will fall over the next few years, a sharp contrast with their sentiment just a half-year ago when inflation was on the boil.

The gap between yields on regular Treasurys and Treasury Inflation Protected Securities, which represents the rate of inflation in the $524 billion market, is now negative for debt maturing through 2012. This means that the market is priced for deflation, or negative growth in the U.S. consumer price index, as oil prices plunge and economic growth contracts.

As recently as March, investors were so worried about inflation that they were willing to accept little payback on their investment except for TIPS' insurance against rising inflation. Since then, oil prices have fallen about 40% and the likelihood of a U.S. recession has spiked.

"The markets' focus has shifted from a problem of inflation to a problem of deflation with commodities coming off so rapidly as global demand is slowing down," said Carl Lantz, an interest-rate strategist at Credit Suisse, a primary government-securities dealer.[...]

[Golgo13]

The reason commodities have dropped is because there's a massive selloff right now to raise cash due to the credit crisis. These prices are totally unmaintainable. The Fed is doing everything they can to throw the dollar under the bus and create a hyperinflationary depression.

[mkwin]

$this->bbcode_second_pass_quote('Golgo13', 'T')he reason commodities have dropped is because there's a massive selloff right now to raise cash due to the credit crisis. These prices are totally unmaintainable. The Fed is doing everything they can to throw the dollar under the bus and create a hyperinflationary depression.

[Twilight]

The give-away is US and UK banks saying "thanks for the bailout, we will not resume lending, piss off". The UK government actually asked for a return to 2007 lending levels and was told by the CML that it was being unrealistic. Meanwhile arrears and defaults are just starting to take off.

I don't know how many more deflation "tells" people need after banking bodies announce they intend to deflate. Do they expect a central bank official to cut into prime time on every channel and announce it live?

If hyperinflation was the plan, it would have been done already. Why isn't the dollar index cratering? Because they are not printing fast enough. Could they? Yes. So you have to consider the strategy is something different. Concealing the fraud and the losses using any means necessary short of full monetisation.

Perhaps hyperinflation is an option as a last resort. "Never say never" as they say. But there are a lot of rabbits to pull out of the hat before anyone contemplates it. Until then, accept you have deflation.