Deflation is winning

[Fearful]

[quote=kewp]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. [/quote]

Yes and no. If the money borrowed to fund consumption comes from a pool of financial assets, then the borrowing is price inflationary. If the money borrowed to fund consumption comes from workers’ wages, then it is not price inflationary.

The fallacy comes from thinking of all money as one pool that is being used for consumption. If that were the case, price inflation would have been horrendous as total debt increased dramatically over the last decade.

When the government borrows money – issues treasuries – to fund a stimulus payment, it is inflationary to the extent that the stimulus payments are spent and used to fund consumption. If recipients of the payments use them to pay down debt or otherwise save and do not consume with the money, the stimulus payments are not inflationary. Of course, the reverse happens when the debt matures and is paid off. This ties to the great debate of the impact of mortgage equity withdrawal, which effectively acted as an ongoing stimulus payment over the last eight to ten years.

On the original topic: Deflation leads to a stronger currency, which decreases import prices and weakens the export sector. The former creates deflationary expectations, and the latter decreases the velocity of money. Both result in deflation. Whether this feedback loop, which also works for inflation and a weakening currency, starts with prices or the currency is a moot point, though currency changes might come first, driven by speculation or risk aversion.

In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary. Watch for a lowered Fed Funds Rate or – not sure how this would work – U.S. open market operations to sell dollars and buy foreign currencies.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

[34f3f3f]

[quote=Fearful][quote=kewp]
In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

Fearful, thanks for the post. May I pick your brains a little further? Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?

[34f3f3f]

[quote=Fearful][quote=kewp]
In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

Fearful, thanks for the post. May I pick your brains a little further? Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?

[34f3f3f]

[quote=Fearful][quote=kewp]
In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

Fearful, thanks for the post. May I pick your brains a little further? Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?

[34f3f3f]

[quote=Fearful][quote=kewp]
In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

Fearful, thanks for the post. May I pick your brains a little further? Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?

[34f3f3f]

[quote=Fearful][quote=kewp]
In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

Fearful, thanks for the post. May I pick your brains a little further? Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?

[Arraya]

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

http://www.reuters.com/article/forexNews…

BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

[Arraya]

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

http://www.reuters.com/article/forexNews…

BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

[Arraya]

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

http://www.reuters.com/article/forexNews…

BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

[Arraya]

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

http://www.reuters.com/article/forexNews…

BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

[Arraya]

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

http://www.reuters.com/article/forexNews…

BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

[peterb]

The world is now officially becoming unwound. Emerging markets are getting hammered and will continue on this path as the OECD countries are not buying the exports anymore. They were highly leveraged on the expectation of this export growth. The US$ is the dominant currency on this planet. The Euro is under huge pressure from internal disagreement among its members. This trend will coninue for some time. Perhaps years. As global unemployment is rising and will destroy demand for all but essential items.

Deflation is just getting started. See what happens in 2009 as US employment hits 8% and the OECD’s in general go through the roof!!!!

[peterb]

The world is now officially becoming unwound. Emerging markets are getting hammered and will continue on this path as the OECD countries are not buying the exports anymore. They were highly leveraged on the expectation of this export growth. The US$ is the dominant currency on this planet. The Euro is under huge pressure from internal disagreement among its members. This trend will coninue for some time. Perhaps years. As global unemployment is rising and will destroy demand for all but essential items.

Deflation is just getting started. See what happens in 2009 as US employment hits 8% and the OECD’s in general go through the roof!!!!

[peterb]

The world is now officially becoming unwound. Emerging markets are getting hammered and will continue on this path as the OECD countries are not buying the exports anymore. They were highly leveraged on the expectation of this export growth. The US$ is the dominant currency on this planet. The Euro is under huge pressure from internal disagreement among its members. This trend will coninue for some time. Perhaps years. As global unemployment is rising and will destroy demand for all but essential items.

Deflation is just getting started. See what happens in 2009 as US employment hits 8% and the OECD’s in general go through the roof!!!!

[peterb]

The world is now officially becoming unwound. Emerging markets are getting hammered and will continue on this path as the OECD countries are not buying the exports anymore. They were highly leveraged on the expectation of this export growth. The US$ is the dominant currency on this planet. The Euro is under huge pressure from internal disagreement among its members. This trend will coninue for some time. Perhaps years. As global unemployment is rising and will destroy demand for all but essential items.

Deflation is just getting started. See what happens in 2009 as US employment hits 8% and the OECD’s in general go through the roof!!!!

[Author]

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