When will deflation turn into inflation?

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  • Sat, Dec 06, 2008 - 01:35am

    #1
    kidz kargo

    kidz kargo

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    When will deflation turn into inflation?

Hello everyone,

I value many here who constantly have a good opinion and critique.  Please help me with this next question!

So the big question I have is this.  When will our current deflation of prices, turn around into inflation?  Also, what are the possibilities of some things remaining deflationary as far as price and other things turning inflationary as far as price?

It seems like home prices have quite a ways to go and will lag and decrease in value until demand actually reaches supply and/or prices correct or some variation of lower prices via a new round of free money for the next expediental wave up in debt; however, the money supply is obviously increasing very fast and will keep going that way.  As prices traditionally lag quite some time with interest rate cuts and money creation working its way through the system, when and what are the possibilities of what we can expect when this massive inflationary increase in the money supply finally hits?  Will everything in the economy start to hyperinflate in price or just some thing hyperinflate like food and utilities.

Can hyperinflation occur with most people being broke?

Can hyperinflation occur due to simple debt maintenance and debt payment and not in traditional GDP spending by consumers, govt, and businesses?

 

Furthermore, what will a hyperinflationary environment look like in the future months and/or years given all the factors of the equation?

 

I appreciate any thoughtful responses.  Thanks.

 

Paul 

  • Sat, Dec 06, 2008 - 08:52am

    #2
    rinaldo

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    Re: Can hyperinflation occur with most people being broke?

 

May I recommend you contact Dr. Gono, Chairman of the Zimbabwe Reserve Bank in this matter …

  • Sat, Dec 06, 2008 - 11:34am

    #3
    radiance

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    Re: When will deflation turn into inflation?

Good question Paul. I am clueless on timing of this event. I hope some here have the answer. I have read others in the past who say it takes 12 to 18 months for FED money to inflate price.

Supersonic change has come upon the planet in the last fifty years. One could also make a case for a longer period but I will with all its inherent short-comings say fifty years. I contend these events are without any precedence in scope, rate of change and impact on the level of human suffering potential; think of JIT just in time global delivery system. We have no storehouse! Except our own shelves. Not having a storehouse is extreme folly. Abundance is guaranteed for only a tiny elite. And adequacy is guaranteed for their army. 

Therefor prepare but at least in America expect confiscation of your storehouse and of course, for the common good!

Ron 

  • Sat, Dec 06, 2008 - 02:12pm

    #4

    Ray Hewitt

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    Re: When will deflation turn into inflation?

When will our current deflation of prices, turn around into inflation?
Also, what are the possibilities of some things remaining deflationary
as far as price and other things turning inflationary as far as price?

A hundred years of inflating money and debt has a long way to go to reach equilibrium. I am of the opinion that we cannot know if or when inflation will return. Right now, deflationary forces are so strong that we are looking at several years for inflation to return if it does. Deflation strengthens the dollar, but that trend is not sustainable. Because the money supply is dependent on debt, there is the possibility that if unemployment grows so severe, there will be too few with the means to take on new debt including government debt. In that case, the value of the dollar falls to zero before inflation can take hold again.

The case of Zimbabwe has to be put in perspective. Their currency is inflating faster relative to other currencies. It”s a whole different animal when all the world’s currencies are inflating within close range. There is a risk that the world’s monetary system could collapse. Or there is the chance that some countries, notably Asian, could go on a gold standard before it goes too far.

Inflation is like pornography. We’ll recognize it if or when we see it coming. A stash of gold and silver prepares us for either outcome. That supply cannot be inflated or deflated.

  • Sat, Dec 06, 2008 - 02:33pm

    #5
    radiance

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    Re: When will deflation turn into inflation?

hewittr

How is inflation created?

What is inflation?

Trillions of dollars are going somewhere in the last 8 months. The FED is apparently giving PAR for toxic waste. What then are the bankers doing with all this cash for waste? After the events of the last months I am not sure I understand what I thought I did about these concepts.

Ron

  • Sat, Dec 06, 2008 - 03:01pm

    #6
    TellicoJim

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    Re: When will deflation turn into inflation?

I have the same concern and have invested on the premise of hyperinflation even though many are predicting deflation.  Where has the 8 trillion dollars gone?  When one takes Chris’s "how is money created" section of the crash course it would seem to indicate that inflation must occur?

I just finished watching/listening to Taleb’s interview on the Charlie Rose show and he seems to be favoring deflation in the short term due to the high level of unsold inventories in almost every sector including stocks.

Even though I have invested on the premise of hyperinflation, I really have no clue as to what might happen, interesting comment by Taleb about the rational market theory, he says the "markets are stupid".  Also a comment by a poster on IV that the markets can remain irrational longer that we can remain solvent.

JMHO

  • Sat, Dec 06, 2008 - 03:02pm

    #7

    Ray Hewitt

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    Re: When will deflation turn into inflation?

Radiance

This equation is not  complete and is not calculable but it helps to understand monetary systems.

General price level = supply of money / supply of goods.

Prices go up if the supply of money exceeds the supply of goods.

Prices go down if the supply of money contracts faster than the supply of goods.

Prices go down if the supply of goods exceeds the supply of money.

Prices go  up if the supply of goods contracts faster than the supply of money.

The popular understanding of inflation and deflation centers around prices, but there is more to it as the example above shows. Keep in mind that debt becomes money when it enters the marketplace to buy goods.

Bankers have been unable to expand the supply of debt, instead are using government bailouts to improve their reserves. So now we are witnessing a contraction of debt money. This is the kind of deflation that scares central bankers. The other kind of deflation, defined by prices declining from an expansion of goods, would be positive, a sign that a nation is producing wealth. There have been episodes on monetary history early in the history of this country where prices went down as our economy grew wealthier. That process started going into reverse with the Federal Reserve Act of 1913 and has now gone to its logical conclusion.

  • Sat, Dec 06, 2008 - 03:09pm

    #8
    kidz kargo

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    Re: When will deflation turn into inflation?

Thank you for your response.  So this is an interesting concept.

 So it might be possible that our debt is so extreme at every level starting at federal, then state, corporate and personal, that the money creation that is currently going on will not lead to inflation of prices but rather only maintenance of debt.  It seems that most of the money creation so far has gone to relieve bank debt, so now in theory banks can start to lend again; however, there really aren’t many to lend to because a recessionary spiral has started plus our personal debt level has really constained us.  Are then any examples in history of a nation being as indebted as we are right now? If so, what was there outcome?

 It seems that in order then for things to turn inflationary again as far as prices go, that there will have to be a new game changer somehow to allow people to take on even more debt.  I know the new plan is for the Fed to absorb more debt from Fannie and Freddie in order to allow for even cheaper interest rates (4.5%) in order to absorb and continue the house game.  It seems like 4.5% still won’t really begin to put a dent into the problem.

Is the Fed gambling that they can simply keep sucking up the debt without really having it impact?  Our they acting out of desperation because it is the only move to keep the system alive and not really caring about 18 months from now?

How much money will the Fed really have to create to begin the inflationary process again with prices?  Since GDP has been almost 70% consumer spending, if they put a $100,000 into everyones bank account and then lowered interest rates to 3% for houses, would that allow for another small wave of inflation?

 

Thanks again in advance. 

Paul 

 

  • Sat, Dec 06, 2008 - 03:33pm

    #9

    Ray Hewitt

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    Re: When will deflation turn into inflation?

So it might be possible that our debt is so extreme at every level
starting at federal, then state, corporate and personal, that the money
creation that is currently going on will not lead to inflation of
prices but rather only maintenance of debt.

It’s a losing battle, but that is about right. The money that goes into the maintenance of debt is diverted away from production, the source of real wealth. Debt per se is not bad. It can be good if an enterprise can earn enough to repay the principle and the interest on the principle. But when one cannot pay down the debt, it grows exponentially because of the compounding nature of interest. That is where we are now.

How much money will the Fed really have to create to begin the inflationary process again with prices?

It can’t be quantified or timed. There would be an inflection point where the economy has contracted so severely, that government spending begins to take affect.

Are then any examples in history of a nation being as indebted as we are right now? If so, what was there outcome?

Yes. Many. The outcome was always catastrophic.

  • Sat, Dec 06, 2008 - 04:29pm

    #10

    Satyricon

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    The only bloke with any idea of what the big picture is

Hewittr,

 

I am monitoring your posts, and quite admiringly mate, you are the only bloke I think here that can see the bloody picture of the dismal American failure called democracy. Not only do you grasp the facts, but you also have a firm understanding of the entire structure of American economics as well. Hat’s off to you, mate. As for you others, pay attention and learn something for a change, and quit spouting off bad data and poorly supported information.

 

 

Cheers

 

 

 

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