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.
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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.
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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 ...
If I own a factory in China and I can use it to produce things that are exported to the U.S. and sold to American consumers for U.S. dollars, then it’s part of my production capacity for all intents and purposes. It may bother the hell out of you that it’s located in China, but there’s no question that its production is included in U.S. economic activity and it influences U.S. currency valuation through normal supply and demand considerations.
He makes a good point about the impact of property taxes in a low interest rate environment. I was considering buying a rental property, but the property taxes on even modestly priced local homes was almost prohibitive. We’re talking $7.3K annual property taxes on a condo priced at $120K. Plus the condo fee. This more than negates the advantage of low interest rates. Furthermore, the property taxes are almost sure to rise in the future.
Needless to say, I decided against the purchase.
Lock & LOAD
Well said.
I agree. If we can manage the rate of deflation than the economy will heal itself.
Again, however, I am looking for evidence in some major market other than real estate to support the proposition of deflation in the article.
Anyway, interesting discussion, and we could get a lot of interesting interchange about paper currency, loan assets, and money, far beyond my ability to devote the time. Thanks for your respectful, insightful comments.
Declining income and assets.
The answer to your question is seen frequently. The answer is “jingle mail”. Homeowners who experience falling incomes and home prices, with the caveat they have little to no equity in the home, will just walk and surrender the home to the bank.
Consider the following steps:
1. Prices go down.
2. Prices go down further, giving people the expectation that prices will go down further.
3. People delay spending on non-necessities, resulting in a fall in consumption.
4. The fall in demand would mean prices fall further and less is produced.
5. Since fewer goods and services are demanded, production is cut, leading to job losses.
6. Prices fall and unemployment rises.
7. People cut spending due to a lack of income and/or expectations of further deflation.
8. Downward spiral etc.
The proper thing that Bernake should have done was to raise interest rates and stop printing money. He did exactly the wrong thing.
What bothers me more than anything else is that we have lost our heavy industrial base. Most people, including you, don’t understand what that means.
I’ll tell you what it means: In 1941 we had a huge industrial base making everything from pencils to cars and airplanes. Today, like your business, most that consider themselves American manufacturers (with foreign manufacturing facilities making the items imported and sold here in the U.S.) have removed and helped destroy our industrial base.
When Pearl Harbor was bombed, the industrial giant immediately switched to MANUFACTURING wartime machinery and equipment. That action was the single most important action that helped us win the wars on both continents and to preserve our freedoms.
Today, if the same scenario happens, we are helpless, for our manufacturing base is not here any longer. Worse yet, a huge part of our military electronics and other equipment and parts are manufactured offshore by countries that may become our enemy. In WWII all military products were manufactured here in America.
If WWIII begins, we’ve lost before we have started simply because we don’t have the industrial base that can quickly be shifted from making civilian to military machinery, equipment and all goods necessary to be self-reliant in the event of war.
That’s what burns my ass.
Great example.
Might steal it (I will give you the credit) for another forum.
This is the concise summary of the explicit program that Helicopter Ben is engaged in right now. His is a war on savers, a jihad against people who defer gratification, who have long term horizons, who save for the future and who are conservative in their fiscal affairs. He rewards and reinforces fiscal irresponsibility in people and institutions. Debt is Freedom! Thrift is Slavery!
There is a special place reserved for Bernanke in Hell.
The majority of the electronics used in the Military are made overseas. Quite a few are made in or from components made in China.
The quality, reliability, and security of those parts are coming into question. In short, they are finding that the guidance chip for a missile has a “back door” in it from the OEM. Now that may not work out the way they planned, everything has a work around, but in a war situation you may not find the problem till it is to late.
Right concept, wrong target. Replace homeowners with (a) world-wide governments, including US federal, state & local; (b) international banks who are hopelessly leveraged 100:1 on non-performing loans; and (c) western military organizations (primarily US) completely dependent on printed money in order to conduct war.
Add these three together, and what do you get? An acceptance of paying ever larger shares of nominal income to pay ever increasing real debt loads - that is, deflation?
Please. They are going to blow up the currency - my guess by at least 50% over the next 3-5 years. So how do you deal with a 50% price increase across the board? Easy - price controls. Well, that creates shortages - well then, say hello to rationing.
So how does this all work in a supposedly open, self-governing republic? Again, please. All the pieces are in place - it will be mere child's play to enact any & all kinds of decrees under the various emergency power acts, especially a hot war against ... Iran. FEMA camps are at the ready to house dissidents, "hoarders", black marketers and other associated 'bad people' aka anti-government types.
It's all very, very simple if you can step back and connect the dots. Intentional (hyper)inflation is coming, and there will be all kinds of tools used to control the resulting 'blow-back' of hungry, despondent & beat down citizens.
If the cost of food, fuel, energy, clothing, household goods, services, insurance, automotive expenses, everyday expenses, etc., etc. keeps “deflating” at the current rate, I won’t be able to afford much of anything essential soon. Funny thing, I always thought money bought more and went farther during “deflation”.
There is a special place reserved for Bernanke in Hell.
It's this kind of emotionalism that will get you guys nailed. If you have any hope of making it through the bottleneck, you need to move beyond this stage of grief ASAP. Perhaps after -O- is re-elected, you will have an opportunity to experience depression. This will be a good thing, because then you'll be prepared for acceptance.
Acceptance is the recognition of what's happened to this country didn't occur overnight. It's been a long process coming, and it's now reaching its terminal point before we begin a new chapter. The new chapter is the scary part, the one were people who are completely aware hope & pray it's resolved peacefully.
you need to move beyond this stage of grief ASAP...
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Grief is it? Since when is common sense grief?
I noticed your date of entry to FR as “Since 2008-03-18” and believe that you are not old enough to really understand things before your day.
In my generation we were free up until 1964 and I assume you have never experienced that “fresh air” during your lifetime so I really can’t blame your for your post.
How can inflation and deflation co-exist?
I think I see how.
The basic mechanism for measuring inflation or deflation is prices. During inflation, we normally expect that we will see higher prices. During "deflation" we would expect to see lower prices.
I think we must adjust our understanding of "deflation". What I believe we will see is very high inflation, with quickly increasing prices, along with a decline in incomes which will cause prices to be less affordable.
The secret ingredient is the rising standard of living among the Chinese, the Indians, and other developing nations.
The basic premise is that there is no economic justification for a college educated person in India, for example, to experience a lower standard of living than a similarly educated person in the States.
Today, that educated Indian DOES experience a lower standard of living. So does a similarly educated Chinese. This creates the economic pressure to move jobs to India and China. As long as the additional costs of moving the job are less than the economic benefit of lower labor, jobs will continue to move. No amount of protectionism or tariffs can eliminate this reality because we must compete in a world-wide economy to get the raw materials we need. If we don't compete, these materials will go to China or India.
Our government is dedicated to increasing the supply of "entitlements" and other government spending. They are doing this now by printing money in order to purchase government debt. This increasing supply of money will insure that dollars in the future will purchase less. At the same time, government policies are accelerating the movement of jobs overseas and creating a greater necessity to import materials rather than create them locally.
Free Trade BS. The USA was funded mostly on tariffs for the first 80 years of its existence.
We also benefitted then from very high productivity. I would claim that it was the productivity and not the tariffs that resulted in the steadily rising standard of living.
Can you describe some specific tariffs that were essential to the early success of the U.S.?
The prices are falling because nobody has the cash OR credit to buy them; they are adjusting back to the post-bubble norm (though prospective buyers have less to buy them with then prior to the bubble).
Whattup?
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