inflation or deflation!!?

[peterb]

This is a questions I think about a lot. Because what we decide to invest in from this point forward is basically dominated by what we think will deflate and what we think will inflate. (Does anyone use the word “appreciate” anymore?) No one seems to argue that we’re in a recession and the “de-coupling” theory seems to be getting shot down more with every passing day. So it’s looking to be a global slow down.
Going back about 30 years or so, historical data seems to indicate that recessions are initially deflationary and then as we climb out of the recession, or as time passes, we start to experience inflationary pressure. And this is true for most of the first world economies. This is probably due to the lag effect of the Fed policy flooding the market with cheap money when we’re in agreement that a recession is upon us. As the cheap money effect kicks in, we start to see economic growth and inflation. Similar to what we experienced going from 2002 to 2003 and 2004.
Once there’s agreement that there’s no growth in the near future, everyone starts to look for ways to reduce costs. This tends to put a deflationary pressure on prices. What if corporate America not only lays off domestic workers, but also increases it’s flight to cheaper production and off-shore activity in order to further reduce costs? What if constricted credit remains tight or is tightened-up more in the future? In other words, what if the cheap money is put to work mostly in places outside of the USA? This scenario would lead me to think that if we dont get the growth factor from the cheap money and other countries do get it, then we’ll experience inflation on products with a global demand while we remain in a deflationary mode for things specific to our economy, like housing and wages.
I dont know how this will play out, but it seems like that’s where we were headed in 2002, but then a lot of cheap money got directed into the real estate market and that’s where most of the domestic economic growth was created from 2003 to 2006. Where will the money go this time?? Will it be able to find another vehicle in the USA?

[pencilneck]

I am admittedly of very little brain. But I have read a lot of good arguments regarding inflation and deflation over the past few years.

One of the most insightful posts I read on this matter regarded the relatively recent collapse of the Argentinean currency:

They had severe credit contractions that were very deflationary. However, while they had deflation in their own economy they unfortunately did not exist in a vacuum. The value of their currency decreased in the world markets (as creditors feared they would not be able to repay their loans) even while the amount money in their banking system also decreased. The costs of goods in Argentina increased (which is generally viewed as inflationary) even amid their credit destruction (which is generally viewed as deflationary). And the currency continued to be devalued on the world markets until the eventual collapse of their government and currency.

It took a long time for me to wrap my little brain pea brain around this but: Monetary deflation certainly does not necessarily mean that our dollar will be able to buy more in a global environment. It seems counter intuitive, but monetary deflation may also decrease the relative trading power of our currency.

Go figure.

[pencilneck]

I am admittedly of very little brain. But I have read a lot of good arguments regarding inflation and deflation over the past few years.

One of the most insightful posts I read on this matter regarded the relatively recent collapse of the Argentinean currency:

They had severe credit contractions that were very deflationary. However, while they had deflation in their own economy they unfortunately did not exist in a vacuum. The value of their currency decreased in the world markets (as creditors feared they would not be able to repay their loans) even while the amount money in their banking system also decreased. The costs of goods in Argentina increased (which is generally viewed as inflationary) even amid their credit destruction (which is generally viewed as deflationary). And the currency continued to be devalued on the world markets until the eventual collapse of their government and currency.

It took a long time for me to wrap my little brain pea brain around this but: Monetary deflation certainly does not necessarily mean that our dollar will be able to buy more in a global environment. It seems counter intuitive, but monetary deflation may also decrease the relative trading power of our currency.

Go figure.

[pencilneck]

I am admittedly of very little brain. But I have read a lot of good arguments regarding inflation and deflation over the past few years.

One of the most insightful posts I read on this matter regarded the relatively recent collapse of the Argentinean currency:

They had severe credit contractions that were very deflationary. However, while they had deflation in their own economy they unfortunately did not exist in a vacuum. The value of their currency decreased in the world markets (as creditors feared they would not be able to repay their loans) even while the amount money in their banking system also decreased. The costs of goods in Argentina increased (which is generally viewed as inflationary) even amid their credit destruction (which is generally viewed as deflationary). And the currency continued to be devalued on the world markets until the eventual collapse of their government and currency.

It took a long time for me to wrap my little brain pea brain around this but: Monetary deflation certainly does not necessarily mean that our dollar will be able to buy more in a global environment. It seems counter intuitive, but monetary deflation may also decrease the relative trading power of our currency.

Go figure.

[pencilneck]

I am admittedly of very little brain. But I have read a lot of good arguments regarding inflation and deflation over the past few years.

One of the most insightful posts I read on this matter regarded the relatively recent collapse of the Argentinean currency:

They had severe credit contractions that were very deflationary. However, while they had deflation in their own economy they unfortunately did not exist in a vacuum. The value of their currency decreased in the world markets (as creditors feared they would not be able to repay their loans) even while the amount money in their banking system also decreased. The costs of goods in Argentina increased (which is generally viewed as inflationary) even amid their credit destruction (which is generally viewed as deflationary). And the currency continued to be devalued on the world markets until the eventual collapse of their government and currency.

It took a long time for me to wrap my little brain pea brain around this but: Monetary deflation certainly does not necessarily mean that our dollar will be able to buy more in a global environment. It seems counter intuitive, but monetary deflation may also decrease the relative trading power of our currency.

Go figure.

[pencilneck]

I am admittedly of very little brain. But I have read a lot of good arguments regarding inflation and deflation over the past few years.

One of the most insightful posts I read on this matter regarded the relatively recent collapse of the Argentinean currency:

They had severe credit contractions that were very deflationary. However, while they had deflation in their own economy they unfortunately did not exist in a vacuum. The value of their currency decreased in the world markets (as creditors feared they would not be able to repay their loans) even while the amount money in their banking system also decreased. The costs of goods in Argentina increased (which is generally viewed as inflationary) even amid their credit destruction (which is generally viewed as deflationary). And the currency continued to be devalued on the world markets until the eventual collapse of their government and currency.

It took a long time for me to wrap my little brain pea brain around this but: Monetary deflation certainly does not necessarily mean that our dollar will be able to buy more in a global environment. It seems counter intuitive, but monetary deflation may also decrease the relative trading power of our currency.

Go figure.

[an]

Why does it have to be one or the other? What if we have both… stagflation like the 70s. We have the consumer spending tapped out and housing going down. At the same time, oil and commodities are sky high, which causes inflation. The easy money that get pumped into the systems can possibly stave of a full blown depression and causes just a mild recession instead. However, due to the flood of $, inflation goes through the roof. I guess only time will tell which way we go, but at this time, invest in anything seems risky since I view it as we’re at a fork in the road. Doesn’t smart money always go some where? They’re never on the sideline for long since inflation will eat away their cash. The million dollar question is, where will the next bull sector be.

[an]

Why does it have to be one or the other? What if we have both… stagflation like the 70s. We have the consumer spending tapped out and housing going down. At the same time, oil and commodities are sky high, which causes inflation. The easy money that get pumped into the systems can possibly stave of a full blown depression and causes just a mild recession instead. However, due to the flood of $, inflation goes through the roof. I guess only time will tell which way we go, but at this time, invest in anything seems risky since I view it as we’re at a fork in the road. Doesn’t smart money always go some where? They’re never on the sideline for long since inflation will eat away their cash. The million dollar question is, where will the next bull sector be.

[an]

Why does it have to be one or the other? What if we have both… stagflation like the 70s. We have the consumer spending tapped out and housing going down. At the same time, oil and commodities are sky high, which causes inflation. The easy money that get pumped into the systems can possibly stave of a full blown depression and causes just a mild recession instead. However, due to the flood of $, inflation goes through the roof. I guess only time will tell which way we go, but at this time, invest in anything seems risky since I view it as we’re at a fork in the road. Doesn’t smart money always go some where? They’re never on the sideline for long since inflation will eat away their cash. The million dollar question is, where will the next bull sector be.

[an]

Why does it have to be one or the other? What if we have both… stagflation like the 70s. We have the consumer spending tapped out and housing going down. At the same time, oil and commodities are sky high, which causes inflation. The easy money that get pumped into the systems can possibly stave of a full blown depression and causes just a mild recession instead. However, due to the flood of $, inflation goes through the roof. I guess only time will tell which way we go, but at this time, invest in anything seems risky since I view it as we’re at a fork in the road. Doesn’t smart money always go some where? They’re never on the sideline for long since inflation will eat away their cash. The million dollar question is, where will the next bull sector be.

[an]

Why does it have to be one or the other? What if we have both… stagflation like the 70s. We have the consumer spending tapped out and housing going down. At the same time, oil and commodities are sky high, which causes inflation. The easy money that get pumped into the systems can possibly stave of a full blown depression and causes just a mild recession instead. However, due to the flood of $, inflation goes through the roof. I guess only time will tell which way we go, but at this time, invest in anything seems risky since I view it as we’re at a fork in the road. Doesn’t smart money always go some where? They’re never on the sideline for long since inflation will eat away their cash. The million dollar question is, where will the next bull sector be.

[svelte]

?…in all other categories including wages…”

Uhh, you wanna bet on that one?

lol, I’m not sure enough to bet on it, I definitely could be wrong.

But with the dollar falling, demand for our goods worldwide should increase. Hopefully that will keep employment levels high enough to offset the job losses in construction and finance. Time will tell.

[svelte]

?…in all other categories including wages…”

Uhh, you wanna bet on that one?

lol, I’m not sure enough to bet on it, I definitely could be wrong.

But with the dollar falling, demand for our goods worldwide should increase. Hopefully that will keep employment levels high enough to offset the job losses in construction and finance. Time will tell.

[svelte]

?…in all other categories including wages…”

Uhh, you wanna bet on that one?

lol, I’m not sure enough to bet on it, I definitely could be wrong.

But with the dollar falling, demand for our goods worldwide should increase. Hopefully that will keep employment levels high enough to offset the job losses in construction and finance. Time will tell.

[svelte]

?…in all other categories including wages…”

Uhh, you wanna bet on that one?

lol, I’m not sure enough to bet on it, I definitely could be wrong.

But with the dollar falling, demand for our goods worldwide should increase. Hopefully that will keep employment levels high enough to offset the job losses in construction and finance. Time will tell.

[Author]

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