The Definitive Inflation vs Deflation Debate and What to do About It Thread

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  • Wed, Jun 17, 2009 - 03:54pm

    #1

    JAG

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    The Definitive Inflation vs Deflation Debate and What to do About It Thread

Given the popularity of the discussion following Dr. Martenson’s recent report: Martenson Report – Inflation vs. Deflation – What Comes Next?, I thought it might be prudent to give the inflation vs deflation debate its own thread. Typically, discussions of this sort engender a great deal of confusion and ambiguity, but given the seriousness of the matters at hand, I believe this discussion can only benefit this community. 

While I think a portion of the discussion on this thread should focus on the various pro-inflation and pro-deflation arguments, I think it would be very prudent to discuss "real world" preparations that each of us should take to personally deal with possible inflationary / deflationary outcomes. For example:

  • What changes should a person make in their daily life to deal with significant inflationary forces?
  • How could someone prepare for a deflationary spiral in their personal life?
  • What investments and financial decisions should one make to mitigate the effect of high inflation?
  • What investments should be avoided in a deflationary environment?
  • What preparations are equally prudent in both an inflationary and deflationary outcome?

I’m perfectly aware that the inflation vs deflation debate is a never-ending exchange, but I think the true purpose of this thread should be focused on tracking the news and data as it unfolds, and to provide the community members with ideas and actions to deal with whatever scenario unfolds in our future. That being said, I have my doubts that this thread will invoke any input, but I felt it is an important enough subject that I needed to try.

Thanks

 

 

 

  • Wed, Jun 17, 2009 - 04:13pm

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: The Definitive Inflation vs Deflation Debate and What …

Good idea JAG.

  • Wed, Jun 17, 2009 - 06:22pm

    #3
    Peak Prosperity Admin

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    Re: The Definitive Inflation vs Deflation Debate and What …

[quote=JAG] That being said, I have my doubts that this thread will invoke any input, but I felt it is an important enough subject that I needed to try.

Thanks

[/quote]

Well, I’m here to prove you wrong!

I like the term bi-flation, and found a wikipedia entry for it. It explains how both deflation and inflation are occurring simultaneously. Bearing this article in  mind, it makes planning for the future a little easier.

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

  • Wed, Jun 17, 2009 - 06:40pm

    #4
    Peak Prosperity Admin

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    Re: The Definitive Inflation vs Deflation Debate and What …

[quote=agitating prop]

[quote=JAG] That being said, I have my doubts that this thread will invoke any input, but I felt it is an important enough subject that I needed to try.

Thanks

[/quote]

Well, I’m here to prove you wrong!

I like the term bi-flation, and found a wikipedia entry for it. It explains how both deflation and inflation are occurring simultaneously. Bearing this article in  mind, it makes planning for the future a little easier.

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

[/quote]

Sounds remarkably like the current situation in the US, the article is 6 days old too.

 

  • Wed, Jun 17, 2009 - 06:49pm

    #5
    Peak Prosperity Admin

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    Re: The Definitive Inflation vs Deflation Debate and What …

Gungnir, I like the reconciling of the two in a way that is easy to understand through personal experience. You don’t have to be an economic scholar to see which way the dollars go—similar to, you don’t have to be a weatherman to see which way the wind blows.

  • Wed, Jun 17, 2009 - 06:53pm

    #6
    Peak Prosperity Admin

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    Bi-flation

 Thanks Prop!

Bi-flation sounds like the perfect definition of our current circumstances. I think it is a more accurate description of the economy than the term stagflation is. I’m always open to a new point of view, especially one that integrates opposing viewpoints within a larger context.

Excellent! Thanks again.

  • Wed, Jun 17, 2009 - 06:57pm

    #7
    Peak Prosperity Admin

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    Re: The Definitive Inflation vs Deflation Debate and What …

Totally, agree. I like the description, even though Wikipedia is asking for citations.

 

  • Wed, Jun 17, 2009 - 06:57pm

    #8
    Peak Prosperity Admin

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    Re: The Definitive Inflation vs Deflation Debate and What …

This is a very difficult question and to analyze it properly we will need to look at several situations at once.  Lets focus on some major areas that effect our daily life; employment, food, utilities, oil (and oil based products), housing, US monetary system

1) Employment = deflation with job loses mounting and those that have jobs pay is being cut or benefits reduced.

2) Food = inflation as I have stated before and can give some more examples that food have gone up in the stores by 30 to 75% over the last year.

Examples:  Campbell’s soup standard can $0.50 to $1.50,  one pound of Kidney beans from $1.00 to $1.45, basic can of green beans $0.40 to $0.54, Cheese Its same cost but boxes went from 9.5 oz to 7.5 oz.  The only items that have held costs are milk and bread but people began to get angry at these costs going up. 

3) Utilities = inflation water has gone up in my area around 8%, I am on a balanced budget program so next January I will get to see the change in these bill (I do not look forward to that).

4) Oil (and oil products) = year or year deflation but recent trend is 40% increase in costs since the beginning of the year.

5) Housing = deflation in my area the only people buying homes are with 2 families going into one home.

6) USD = flat line, we can only imagine what will happen to this in the coming time.

Basically we are looking at most costs going into inflation and most items that are considered equity items for the average Joe going down.  This is by definition Slumpflation http://www.merriam-webster.com/dictionary/slumpflation . Fujisan informed me about this term.

IMO Slumpflation is the worst of all inflation’s (looking at stagflation, deflation and inflation ((than you can put hyper- on all of them).

 

  • Wed, Jun 17, 2009 - 07:15pm

    #9
    Peak Prosperity Admin

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    A Strategy for Inflating Gas Prices

 A while back I posted a personal strategy of mine to hedge against rising gasoline prices in Simple Strategy to Hedge Against Rising Gasoline Prices.

I have to say this strategy has worked perfectly for me. My initial investment in the UGA ETF is up 63% since I implemented this trade at the beginning of the year. Though I will probably wait to take a distribution to avoid the short term tax rate, it is good to know that I have effectively froze the price of gasoline at $1.60/gal for my family this year.

  • Wed, Jun 17, 2009 - 07:24pm

    #11
    Peak Prosperity Admin

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    CPI Drops 1.3% in Past Year, Biggest Drop in 59 Years

Commentary from Mish

 CPI Drops 1.3% in Past Year, Biggest Drop in 59 Years; Where To From Here? 

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