Skip to comments.Deflation's Here, and the Downward Spiral Has Started
Posted on 09/19/2012 2:45:49 AM PDT by OwenKellogg
Denmark, Germany, Switzerland, and Finland have been issuing short term government notes at negative interest rates since mid-year 2012!
This dangerous precedent has happened before. Most recently, Japan experienced negative interest rates in the 1990s. The effects of the economic quandary in Japan and the efforts to restore growth were so misguided that the Japanese are still attempting a recovery. In almost twenty years, Japan has yet to make a full economic recovery.
The United States and the European Union are next and are headed into the same disaster as Japan unless decisive action is taken now.
Deflation is characterized by falling prices, falling incomes, declining value of real estate, and an inability to fund government debt and unfunded obligations.
Deflation has begun, and governments continue to push the "cliff" date as far into the future as possible when only quantitative easing is considered by the Federal Reserve and more government spending is considered by the White House.
In Scranton, Pennsylvania, for example, declining real estate prices for an overburdened tax base on top of substantial unfunded liabilities of a "rust belt" city forced the mayor to cut all municipal pay to minimum wage.
Similar situations will occur for bankrupt cities and municipalities in California. Should the unfunded mandates and obligations not be cut, an increasing tax burden on property will merely reduce property values further.
At this point, the death spiral of deflation begins, and our economy will collapse. Economic recovery will be difficult at best because deflation's spiral is so difficult to reverse. Buyers are rewarded with even lower prices by waiting to purchase goods and services.
(Excerpt) Read more at americanthinker.com ...
Trillion dollar deficits are an effective WMD.
We are heading toward a dictatorship. Lock down.
Inflation is generally hailed as a bad thing, especially in the Obama period of running the printing presses and flooding the economy with almost worthless dollars. The purchasing price of the basic dollar has plummeted. The faith and value of the backing of the US government is failing leading further devaluation of the dollar. The leads to situations such as occurred in Zimbabwe and the Confederacy as the dollars became worth less the the paper printed.
With too much money in circulation and inflation increasing to the point where groceries are becoming harder to buy, wouldn't a period of deflation be a positive? Yes, prices will fall and wages will stagnate but as monetary supply tightens, the purchasing power of the dollar will increase. Isn't this a correction we need?
- a good time to split up that weapon collection into multiple store locations - preferably extremely well concealed or buried
Sure, overvalued real estate prices are pointed to in every article like this one. I'd like to see some other examples. Prices aren't falling at the grocery store or the car dealer or the tax assessor. Anyone who believes the official CPI and the story that prices are relatively stable is...well, wrong.
Think of a 30-year fixed mortgage in a deflationary climate. Who in their right mind would ever want to keep a home if they are paying a fixed-rate mortgage for 30 years while their incomes are expected to decline over that period?
I lived in Europe when the converted the Euro. It happened overnight (literally). The next day, all the ATMs stopped giving out Francs, Deutshmarks, Drachma, Pesos, Gelder,and Lira and spit out Euros.
People were shocked how much things cost after the "conversion." A cup of coffee that was 1.5 DM became 2.0 Euros, and that was basically a tripling of the price.
I believe in the Bible, and the Bible tells us the Antichrist takes over the world's financial system.....so it is going to happen. Count on it. When? Who knows. But we should read the signs of the times.
All I see are increasing gas/diesel prices; another .10 - .25 cents for everything I buy at the supermarket every week; and virtually everything else that I need to purchase on a monthly basis.
Yeah my house has dropped in value like everyone else, but that really is just getting housing back to a realistic price that the average family can afford.
Prices aren't rising because the things we purchase are becoming more scarce. Oil, for example, is trading at a very high price even though North American refineries can't refine it fast enough to keep up with the production (this is reflected in the lower price for West Texas Intermediate compared to Brent crude). It's not the supply and demand of oil that driving the high price, it's the devaluation of the U.S. dollar.
However, this situation is a powder keg. The definition of inflation used to be "an increase in the money supply that leads to a rise in prices". (I kept an old dictionary just for this definition.) The increase in the money supply has occurred. When people and institutions finally start spending money prices will begin to increase. When they perceive the value of their dollars is decreasing they will become eager to spend money because it will be worth-less tomorrow. Demand for dollars will be low and their supply in circulation will increase This can rapidly get out of control. This is why having non-dollar assets is critical. Once the dam breaks prices will rise dramatically.
As to your question, the politicians require inflation. They have gotten the nation into an economic mess. Inflation is a tax on everyone. It's another way they can steal money so they can buy votes.
The clearest author on this topic I've found is Richard Maybury, whose Uncle Eric series makes it as simple as possible.
“Are we all headed for lower wages and a complete reset in the prices of things?”
Anyone I know who lost their job and was lucky enough to find another one is making a lot less money - even if they’re doing the same thing. Wages are being adjusted down to the “new normal” (Red Chinese peasant standards - basic necessities); the only ones protected from this are government workers (private-sector workers can bargain for better pay, though this simply accelerates the movement of those jobs overseas - or the import of Asians to do them here).
I’d like to believe that too many people still remember better times, and that they’ll vote out The Sultan in an attempt to bring them back.
Good points and explanation. But isn’t devaluation of the dollar a necessary concomitant of inflation, not deflation? I understand your point about, for lack of a better term, “structural” inflation, but it seems to me that the outcome is the same.
“Yes, prices will fall and wages will stagnate but as monetary supply tightens, the purchasing power of the dollar will increase.”
This simply isn’t happening; the only prices falling are homes (which are the ones we DON’T want falling), while food and gasoline are increasing. We are fortunate that the effects of the Obama spending became evident so quickly (in time to stop his re-election); for too long terms like “deficit” and “spending” were hard for average Americans to relate to their daily lives. We aren’t mortgaging our grandchildren’s futures, or even our children’s; we are mortgaging OUR PRESENT - and it hurts.
The USofA will also move from the US Dollar to an American Dollar which will be be valued at about 45 cents of the 1999 valuation. We are just about there now.
I don’t buy it. First, with the Fed creating (they don’t even print it anymore) trillions, the money is inflating, not deflating. Prices are up for energy and food. Real estate prices are down because of a bubble, a bad economy, and demographics, not because of the money supply. There aren’t enough young people to buy the low end homes, and low end homeowners can’t sell to move up. The largest group of homeowners are baby boomers, who if anyting are more likely to be downsizing. Of course some localities are better off than others, but that’s the general trend.
Some consumer goods may go down temporarily as manufacturers find themselves with large inventories they can’t sell, but that won’t last. They will cut production or go bankrupt.
But the price of everything else isn’t going down. Production will simply decline to a profitable level, and prices will go up in realation to fiat dollars.
“Yeah my house has dropped in value like everyone else, but that really is just getting housing back to a realistic price that the average family can afford.”
Don’t hold your breath waiting for viable bids (though you may get offers to rent the place); the next generation of American homeowners will be miniscule. Breeding is sputtering to a stop among those Americans that even bother getting married, and childless couples earning “new normal” wages no longer have their primary motivation to buy a home - the tax deductions (they don’t even need them anymore, and the property tax bills more than offset any tax benefits). People realize they need to keep their mobility to follow their jobs (a la “The Grapes of Wrath”), and even though “short sale” has replaced “foreclosure” in our lexicon, the fact is many Americans just realized that their “mortgage payments” were in fact “tax-deductible rent payments” as they find themselves out of their homes with nothing to show for years of such payments.
I believe the amnesty is just to get illegals and “replacement Americans” into these homes; they are still breeding, and even losing it after five years of payments is preferable to remaining in the Third World toilets from which they’ve fled.
Something to keep in mind here is that with a "paper currency" like the U.S. dollar, money is created as a debt instrument. If you buy a home for $300,000 and apply for a $250,000 mortgage, that $250,000 is basically created "out of thin air" when your bank borrows the money from the U.S. Treasury so they can lend it to you. You get a mortgage, the seller gets $300,000 in cash, and there is now an additional $250,000 in circulation that never existed before.
Now let's suppose you lost your job and never made even a single mortgage payment. The bank forecloses and gets the house back, which under most circumstances wouldn't be a huge problem because they can turn around and sell it for $300,000 to someone else and pay you the difference after they recover their legal costs for the foreclosure. But let's suppose that you lost your job at the same time a lot of other folks lost their jobs, and the bank can't sell the house for more than $200,000. The $300,000 that you paid to the previous owner is still out there, but $100,000 worth of assets have vanished overnight. This would include your $50,000 down payment and $50,000 worth of the bank's assets (the difference between their $250,000 loan and the $200,000 value of the home).
Multiply this story several million times, and you find yourself asking if that $100,000 in "lost" assets (or at least the $50,000 difference between the current value of the home and the mortgage balance) ever really existed in the first place. That is really what this deflationary spiral is all about. There is basic deflation in this case because money has been lost and economic activity has declined, but the Fed is buying mortgage bonds and the U.S. Treasury is printing money like crazy in an attempt to drive the "dollar value" of that home back up to $300,000.
If homes were all purchased for cash, then those prices would probably be rising, too!
(i.e., our production capacity far exceeds our ability to consume what we produce)
Our production capacity????????????????? What are you talking about?
WE DON’T HAVE ANY PRODUCTION CAPACITY! Our manufacturing base has been destroyed by our own overblown government regulations, bureaucracies, taxes, our legal system and a host of other parasitic maladies.
Our production has moved to other countries and then imported back into the U.S..