Skip to comments.In 1929, Deflation Started In Europe Before Overtaking The U.S.
Posted on 11/30/2012 3:50:10 PM PST by blam
In 1929, Deflation Started In Europe Before Overtaking The U.S.
Economics / Deflation
Nov 30, 2012 - 05:23 AM
What Happens in Europe Will Not Stay in Europe
More than 1,500 years after the fact, scholars still debate the causes of the Roman Empire's fall.
What historians do agree on is that the crumbling empire's final days were marked by economic contraction, a struggle to fund Rome's routine affairs and excessive debt.
Mark Twain said, "History doesn't repeat itself, but it does rhyme."
That quote seems to apply when economically comparing the Roman Empire and the United States.
Today's superpower also faces a mountain of debt and a slow economy.
Unlike then, however, the modern economy is global.
So an economic downturn in one major area of the globe is likely to affect another. In fact, even during the Great Depression (long before the phrase "global economy"), Europe was exporting to America.
But one historic export was not the kind that the U.S. welcomed.
The economy is clearly vulnerable to a debilitating wave of debt deflation. The threat is approaching quickly from an important source: Europe. The same sequence of events occurred in 1929, when deflation started overseas before lapping onto U.S. shores.
The Elliott Wave Financial Forecast, January 2012
The Financial Forecast has long kept a careful eye on the threat Europe's debt crisis poses to the U.S. economy.
The economic slowdown that EWFF characterized in January as Europe's "top export" is finally reaching foreign shores. Several financial news outlets report that the U.S. and China are now "slipping in sync" with Europe.
The Financial Forecast, June 2012
And recent news registered the economic slowdown.
* Small Businesses Grow Wary; See Fewer Hires -- Reuters, Oct. 9
* IMF Slashes Forecasts for Global Economic Growth -- CNBC, Oct. 8
* World Bank Cuts East Asia GDP Outlook, Flags China Risks -- Reuters, Oct. 7
* Europe's Richer Regions Want Out -- New York Times, Oct. 7
* Entrepreneurship is 'weaker than ever' -- CNNMoney, Oct. 5
* The U.S. unemployment rate tumbled to 7.8% in September but a broader measure was flat at 14.7%. [emphasis added] - Wall Street Journal, Oct. 5
* Orders to U.S. Factories Plunge -- Bloomberg, Oct. 4 Spain's Tax Take Tumbles as Companies Go Abroad -- Reuters, Oct. 3
* Trade Slows Around World -- Wall Street Journal, Oct. 1
Indeed, the European Central Bank recently initiated a new bond buying plan, the Bank of Japan just expanded its asset purchase and loan program, and the Federal Reserve announced QE3.
But don't count on central bankers to rescue the global economy.
Consider what Robert Prechter said in the July 2012 Elliott Wave Theorist:
The Fed's actions are short-term inflationary but are setting up a bigger crash than would happen otherwise.
Why do The Fed and other central banks around the world keep making these types of mistakes?
which to believe in ....
Well, define hyperinflation first. Does it have to be like Zimbabwe to be called hyperinflation? Is it worse that the double digit inflation of the 70s and early 80s?
IIRC the inflation then was pretty devestating to most Americans, especially those stuck in dead end jobs or retirement etc. where revenue could not increase fast enough to keep up.
In Jan. 2009, a 16 oz jar of store brand peanut butter cost #1.00 - it now costs $2.25 thats 125% in about 4 years. That’s more than 30% per year. I don’t call care what you call it, crisis level, hyper, almost hyper - In the real world, that is a serious level of inflation for “poor man’s protein”.
Me, I am not worried for example,that my house has declined in value, cause it is not underwater, and my property taxes went down which is helpful to my budget.
I am extremely worried that the continued QE/twist/devaluation of the dollar is soon going to mean that I won’t be able to eat and buy gas and to get to jobs, and medicine, and still pay my bills.
And I don’t appreciated Government stats that ignore those things in order to claim that inflation is low.
It seems to me that “big” inflation is here and growing and not about to stop anytime soon. Am I wrong?
New World Order...
Well, define hyperinflation first.
You have a recent case history in Argentina...wiped out most of the middle class.
Yeh, so define it. What % per year? Does it have to be as bad as Argentina before we use the term hyperinflation?
If these guys are going to argue over whether we have hyperinflation or not, they ought to at least define what level of inflation they consider hyper, and whether or not every thing has to be inflated or if they just look at certain items, and ignore the rest like the Government does.
I’ve posted before that I think what happerns to us is what happened do the USSR. We don’t have to go way back to the Roman empire.........................
The inflation is already baked in, imo. The “problem” is, it isn’t linear and it doesn’t happen right away. When it does, watch out. The “experts” in the 1970s were confounded because, something happened that according to them, just was not possible - high inflation and high unemployment. So a new term - stagflation - was coined.
Hyperinflation is a different animal altogether. It occurs when confidence in the currency is lost altogether.
I wish I knew.
Problem is, the terms deflation and inflation can honestly be defined differently and so understanding just where they're coming from and what definitions they're using goes a long way to deciphering it all.
You've lived with mild inflation for practically your entire life if you were born after WWII, with one period of high inflation set off by the Arab oil embargo and the sharp recessions that followed. Even this was not the so-called hyperinflation, that term that gets bandied about so carelessly.
The US dollar has never experienced it. Confederate currency did, as did currencies introduced during the American Revolution. The value fell to practical worthlessness. Faith in these currencies was short lived, it was overissued creating inflation, then loss of confidence in the currencies led to abandonment of it, which further drove the value down, heavily devaluing it, which to the unfortunate holders of the currency was indistinguishable from the dreaded hyperinflation.
Catastrophic deflation, we've experienced that with the dollar, during the Great Depression. Demand fell, prices fell, debt was defaulted upon, causing a repeat of the cycle. It got to the point that nearly everything was very inexpensive, but few could afford even that. The economy grinds practically to a halt, even solvent businesses beginnhaving difficulty due to loss of demand. It's not a good thing, despite all the wishful thinking on the part of those who envision themselves being the lucky ones who manage to hang onto a mountain of cash, then swooping in and buying up assets for a song. Bank failures tended to put the kibosh on that for people of more modest means.
Weimar Germany is the prime example of hyperinflation, currency being burned for heat, wheelbarrow loads to buy groceries, I'm sure you've heard or read about it. Pretty shortlived, less than a year under those very severe conditions. The means of surviving that at the time was to convert to another more stable currency.
In more modern times, there's the nightmare that beset the former Rhodesia, now known as Zimbabwe. Malfeasance, malice, incompetence, you name it, it's a descent into chaos and an economic dark age for those unable to escape or at least secure their savings elsewhere.
All this rambling on my part I guess is to try and illustrate that you don't have to choose one or the other, to “believe in” one or the other. They both happen to unstable currencies. That instability can have a variety of sources or causes, even multiple ones. You can have one followed by the other in fairly rapid succession, which happened in the Weimar Republic.
Observe, see what is actually happening. That will tell you what others fear, at least. We have our own government plastering the world with our currency, the dollar. That massive increase in the money supply is the classic definition of inflation. We also have, however, a massive collapse of certain financial instruments as well as defaults. This is deflationary because it removes real money from circulation.
These two forces have been whipsawing practically every economy in the world since late summer, 2007 when it all began. Commodity bubbles, rapidly spiking and collapsing just as rapidly, have been the only symptom thus far of a massive increase in the money supply. This is an attempt at staving off a disastrous deflation event, all the more dire now because debt is so much more widespread. The maw of this thing is huge and it appears insatiable thus far.
Thus far. There will come a time when various central banks overshoot the mark, though. So, I've been maintaining that we're having the effect of both simultaneously. One or the other hasn't won out.
The day will come when one of them does, hence all the debate. We're talking about governments here. Restraint is not characteristic of government in the modern era. Austerity? Who would actually mount an austerity program and hold to it? Germany?
This is the mess we're in.
Hyper-inflation is triggered when people begin to "feel" that their money is shrinking in purchasing power. By all rights, we'd be in hyper-inflation now given the amount of money Bernanke's poured into the system. But confidence is still high.
Our fiat money system is based on nothing but faith. Hard assets [land, gold, etc.], however, are real. That's what we should believe in.
“Why do The Fed and other central banks around the world keep making these types of mistakes?”
Because they are the mistake.
Backers of counterfeit phony papermakers, in reality not backed by direct collateral.
Every-time I thought I had figured out the best thing to do, the computer would come back and say “that's ok President Nixon has had trouble with inflation too”.
The main thing I figured out after all the hours playing with the model, was the more the Government did, the worse the long term effect, and things were worse later, than they would have been, if the Government had just done nothing, so most times it would be better for Uncle Sam to do as little as possible.
I’m no economist by any means, and I didn’t stay at a Holiday Inn Express last night, but I would imagine Deflation would destroy your common household today that is mired down with lots of debts. The Federal Reserve has no tools in its arsenal to fight it either. They can try to control INFLATION, but deflation turns Bernanke into a helpless bystander. I suppose he could mail everyone a $100,000 check. LOL
LOL, buy now with credit and repay with inflated dollars?????????????