When will deflation turn into inflation?

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  • Sat, Dec 06, 2008 - 04:55pm

    #11

    Ray Hewitt

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    Re: When will deflation turn into inflation?

Thank you mate.

It took me decades to weed out in my own mind the disinformation propagated in schools and the media. If I can provide navigation signals to help guide others through this morass, then my time here is well spent.

  • Sat, Dec 06, 2008 - 05:40pm

    #12

    pinecarr

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    Re: When will deflation turn into inflation?

Kidz Kargo-

   I think many of us are trying to figure out the answer to your question about if/when hyperinflation will occur.  I don’t claim to know the answer, but here are a couple articles I recently read from financialsense.com with interesting views.  They are:

"Zombie Banks and Gold Triggers" by Jim WIllie,  http://www.financialsense.com/fsu/editorials/willie/2008/1204.html .  Here’s a clip:

"…THE NEXT MAJOR STEP IS MONTHS AWAY, BUT IT WILL FEATURE NATIONALIZATION OF MORTGAGES, REDUCTION IN LOAN BALANCES, WHOSE COSTS ARE COVERED BY THE US CONGRESS. More pain is needed to reach a consensus on such a huge new program. The nationalization of mortgages will ultimately cost at least $2 trillion. [clip]…THE MORTGAGE NATIONALIZATION WILL FINALLY PERMIT REFLATION, SURE TO RESULT IN HYPER-INFLATION. THE GOLD PRICE WILL REACT IN A CLEAR AND UNMISTABLE MANNER. Now that most foreign central banks have moved to extremely accommodative official interest rates, the USDollar is less at risk from relative monetary competition. They are by now fully aware of the risk to their own banking systems and economies. The global move to reflation, if not hyper-inflation, is soon to be triggered. The maneuver in October to install a globally available USDollar Swap Facility was a deft insurance policy planted by the USFed to assure that foreign banking systems are laced with USTBonds. They can less easily abandon the USDollar as the global reserve currency. The entire, at least Western, world will be joining in the process."

 

Another relevant interest is "Credit Deflation = More Credit Inflation = Hyperinflation + Depression" by Shelby Moore,  at http://www.financialsense.com/fsu/editorials/2008/1203.html .  Here’s a clip from that article:

""…Deflation of prices is only possible when the money of circulation is, or is a bill exchangeable for, precious metal (gold and/or silver standard). Deflation of prices occurs when the money supply can not be increased faster (than the mines can produce) than the supply of goods. Deflation encourages saving, which is in the long-run is good for sustaineable capital investment…

…In 1930, the government was powerless to increase the money supply, because the USA was on a gold standard. FDR’s New Deal was not possible until he had removed the constriction of the gold standard (domestically) with the 1933 confiscation…

…This has enabled a massive hidden tax on the society in order to finance american dominance globally. The tax was paid as poverty in developing world, and as accumulated fiat debt in west…

…The hyperinflation will manifest as soon as the world’s bond holders become aware that they are being debased at double-digit negative real interest rates… …bond holders are currently focused on the imploding credit, not on the money supply. It is going to be whiplash in the bond markets sometime in 2009 or 2010. Then all hell will break lose.’


Another writer I find interesting is Ty Andros.  He has a series of articles on the coming "Crack Up Boom".  The latest article is "The Crack Up Boom Part XIII", at http://www.financialsense.com/fsu/editorials/andros/2008/1203.html 

"…Recent Bailouts announced in the U.K. remind me of ICELAND. The idea of politically-directed lending to bankrupt people, banks and businesses is OBSCENE. And how do they pay for it? By borrowing from the prudent savers (destroying the seed corn of future growth), printin the money or taxing what little is left of actually productive enterprise and individuals. It is a recipe for disaster. When this episode is complete Keynes will be the most REVILED economist in history.

The U.K. economy can be expected to collapse, as well as the rest of the G7, under these policies. They are compounding debt upon debt. Deflation occurs now, as rolling bankruptcies destroy what’s left of the wealth-creating private sector, which no longer has access to short-term financing as the babies are thrown out with the bathwater. The people and businesses that are being rescued don’t produce more than they consume and you can expect that to continue with government funds printed to underpin them. Then, hyperinflation occurs as basic goods and services disappear and government prints the money to pay for them when incomes collapse FURTHER."

Like I said, I don’t know the answer to your question.  But maybe these articles help give some food for thought. 

  • Sat, Dec 06, 2008 - 06:01pm

    #13

    Nichoman

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    Re: When will deflation turn into inflation?

Inlation vs. Deflation: Agree with some Comments by Chris and others some keys are monitoring…

1.)   Changes in US Treasuries yield curve.

2.)   Changes in Other Global Currencies yield curves.

3.)   Changes in Commodities and their Futures.

4.)  Then explicitly compare 1 to 2 and 3…if 1 increases relative 2…we are doing WORSE than other counties w/r/t financial debt issue.  If 1 and 3 accelerate in tandem…there’s your answer. 

 

On a broad note…history suggests whenever we reward inefficiencies and failure (maintaining institutional powers) inflation tends to more often then not to occur.

 

Some questions I ponder…

We are in a "snapshot of time "…are we solving the problems or making them worse?  

If worse then how many are realizing were doing things wrong and why?

If this is so non-linear…or accelerating so rapidly….besides CC and DVD’s how can we all be part of solution toward mitigation?

 

Nichoman

 

  • Sat, Dec 06, 2008 - 06:21pm

    #14

    mainecooncat

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    Re: When will deflation turn into inflation?

[quote=Nichoman]

Some questions I ponder…

We are in a "snapshot of time "…are we solving the problems or making them worse?  

If worse then how many are realizing were doing things wrong and why?

If this is so non-linear…or accelerating so rapidly….besides CC and DVD’s how can we all be part of solution toward mitigation?

[/quote]

This is at the heart of the dilemma of the human experience itself, isn’t it?

We are self-conscious and, therefore, can consciously do things yet much of the time we are on auto-pilot. When something catches our attention and we feel that we must act (silly expression really because we’re acting all the time) the hyper self-conscious person will then ask, but is this really something I should "act" on or should I just "go with the flow (auto-pilot)?" 

Then, will our "actions" even do anything, perhaps make thinks worse?

Well, we’ll probably never know, so short of going at things blindly, "acting" is enjoyable.

Though, in the end, I find the fascination I receive from studying all of this worth the price of admission itself.

  • Sat, Dec 06, 2008 - 06:37pm

    #15

    Nichoman

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    Re: When will deflation turn into inflation?

[quote=mainecooncat]

Though, in the end, I find the fascination I receive from studying all of this worth the price of admission itself.

[/quote]

 

It is an interesting exercise of human nature.   Personal experiences in disasters and wars…with communication…education…partnerships and true real leadership we can handle this better than dire predictions.

 

Sadly…our two political parties have turned their backs on the principles for the solution.  Key document is Washington’s "Farewell Address To The People" which was supported vigorously by Alexander Hamilton, James Madison, Thomas Jefferson, John Jay, John Adams…then highly praised by Jackson, Lincoln, T Roosevelt.   When I consider the 5 themes in his letter to our situation…I just shake my head.   If others disagree…please explain why?

 

Nichoman  

  • Sat, Dec 06, 2008 - 10:22pm

    #16
    joemanc

    joemanc

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    Re: Can hyperinflation occur with most people being broke?

[quote=rinaldo]

 

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

[/quote]

I can picture Dr. Gono being the twin of that media guy during the Iraq war, who said everything was fine as bombs were dropping all around his city.

  • Sun, Dec 07, 2008 - 12:00am

    #18
    kidz kargo

    kidz kargo

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    Re: When will deflation turn into inflation?

Thank you for the links.  I read all three articles and they make a compelling point about inflation at some point.

Here’s the way I understand it currently.  The current deflationary forces are strong and will continue to increase indefinitely since that is what the market forces naturally would have happen.  It seems that our government interventions have been too little, too late and extremely nearsighted with their actions thus far.  The money supply is increasing but the money is not actually going into the real economy (yet? maybe never?)  Paulson and the Fed seem to be reactionary only, like firefighters on a bad fire that is not controllable.  This process seems as if it will continue until there is a significant change to the problems that got us here in the first place.

So it seems, that all the money creation currently is potentially laying the foundation for a future event (something that will be a catalyst), perhaps a nationalization of home mortgages (that would help consumer spending again), or some other massive event (maybe another large war), or both or something that catapults re-inflation. It will have to be a very big event to recreate spendable money, and enough to keep the accelerating pace that our exponential curve requires.  If this happens, at that point, reflation could very quickly lead to hyper-inflation because of the large money supply that is growing rapidly that is acting like potential pent-up demand.

The other option is that we will continue to be reactionary and won’t deliver on the big catalyst events that delivers actual spending money for working people and we will continue to print money for debt maintence and bad business entities and bonuses and that the currency will basically hyper-inflate and decrease in real potential spending value because we will decline much faster then the rest of the world and or may keep declining even as other parts of the world stabilize because they are actually producing real things.  Due to the U.S. not being prepared, we will continue with a really bad recession, losing jobs and having values erode, while at the same time, prices for food, oil, energy, other oil related things will start to explode because the relative value of our dollar will simply buy less and less. 

Could it be a depression with segments of hyperinflation in regards to commodities and energy?

Trying to grasp where this explosion can possibly go.

 

Paul

 

  • Sun, Dec 07, 2008 - 12:28am

    #17

    Ray Hewitt

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    Politicians love broken people

Question: Can hyperinflation occur with most people being broke?

Answer: Wall Street, Fannie and Freddie, and Detroit were first in a long begging queu. We’ll be seeing state governors soon. Insurance companies are on the brink. They haven’t finished nationalizing the real estate market. There is a military-industrial complex that needs to be kept busy. Baby boomers are starting to retire. Nationalized health insurance. Insured private pensions have to be paid. The unemployed need to eat. And so on……

There is a pattern here. Hyperinflation can occur because most people are broke or soon to be broke.They’ll have no trouble finding willing takers.

And a reminder of the moral hazard of this. When government subsidies something, you get more of it. It pays to run a business badly. It pays to not work. It pays to let government pay. War pays. Welfare pays. Where it stops, nobody knows.

 

  • Sun, Dec 07, 2008 - 02:42pm

    #20

    Ray Hewitt

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    Re: When will deflation turn into inflation?

History continually repeats it’s self.

Personal self-interest is built into our genetic code, without which we would have not survived as a specie. But it does have some undesirable side effects.

I believe this crisis has not even begun yet.

Correct. And when it is over, the weak will have perished. The foundation will have been laid, for what I think, will be a more advanced world society. Assuming history repeats again, there is an historical precedent when the Renaissance followed the Dark Ages.

I know that is a harsh way to put it. As much as we would like to believe otherwise, we can’t escape what we are and how we evolved from that primordial soup.  

  • Sun, Dec 07, 2008 - 04:40pm

    #21
    radiance

    radiance

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    Re: When will deflation turn into inflation?

 Hewittr,

"I know that is a harsh way to put it. As much as we would like to
believe otherwise, we can’t escape what we are and how we evolved from
that primordial soup."

Faith is the assurance of things hoped for the evidence of things not seen.

Ron

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