We better off when it was growing and we're worse off with it shrinking, so the "problem" is that we want more of it?
Posted on 05/23/2013 9:13:00 AM PDT by blam
Will It Be Inflation Or Deflation? The Answer May Surprise You
By Michael Snyder
May 22nd, 2013
Inflation Or Deflation
Is the coming financial collapse going to be inflationary or deflationary? Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country. Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation. Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts. So what is the truth? Well, for the reasons listed below, I believe that we will see both. The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis. This will happen so quickly that many will get "financial whiplash" as they try to figure out what to do with their money. We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.
So why will we see deflation first? The following are some of the major deflationary forces that are affecting our economy right now...
The Velocity Of Money Is At A 50 Year Low
The rate at which money circulates in our economy is the lowest that it has been in more than 50 years. It has been steadily falling since the late 1990s, and this is a clear sign that economic activity is slowing down. The shaded areas in the chart represent recessions, and as you can see, the velocity of money
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(Excerpt) Read more at theeconomiccollapseblog.com ...
I thought that interest rates would have risen and we would have some inflation by now. But I guess there’s a lot of other factors; no velocity and other countries worse than us.
I believe that we will see both. The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis.
You can see an analogy of it in those russian youtube “crash compilation” videos. A car on a snowy road starts to slide sideways and the driver over-corrects, causing it to spin out in the OPPOSITE direction. It happens so fast that the inexperienced driver is caught completly by surprise when he must correct - often much faster - in the opposite direction.
And that’s the thing. By the time they notice we are entering inflation, it is already accelerating too fast for them to do anything about it. The “correction to prevent deflation” spins us wildly into hyperinflation.
It’s why you should be buying all the gold, silver and real estate you can get your hands on. Yes, that means PHYSICAL metals.
When I turn 59 1/2 (avoid penalties), I will be liquidating a fairly large amount of my 401K and converting to physical junk silver. Problem is, I fear it might be too late. I turn 59 1/2 this July.
We better off when it was growing and we're worse off with it shrinking, so the "problem" is that we want more of it?
You can have both.
Look at it this way:
Let’s say that in 2012 a new car was 50% of your $60,000 income.
Along comes monetary inflation (QE induced) and your income rised to $120,000 (all factors being equal). But the economy sucks (few people have jobs) and the rising prices have a psychological effect on buyers. The going rate of a car goes from $30k to $50k, a monetary increase, but a decrease in real value.
Both: hyperinflation of necessities and deflation of everything else, making it that much harder to earn enough to buy those necessities.
Doesn’t anyone read history anymore?
We have actually been seeing deflation in housing and pretty bad inflation with things like food all at the same time for 6 years now.
...and pretty bad inflation with things like food all at the same time for 6 years now.
The tax deal in January cost me a car payment every month...
Yep... and the key is to be wisely invested in those necessities. Like traditional energy companies.... food retail and distribution.... textiles. Not facebook, google, wind energy, etc etc.
The problems of the Fed’s excessive money creation, and how much “money leaves” the U.S. are both masked by what happens in the “shadow banking” system. Many of the practices of the shadow banking system alude the “monetary accouting” that the Fed can describe, in whole or in part.
While the Fed system permits a savings deposit of $100 to potentially put $1,000 dollars into the hands of borrowers, some “shadow banking” tools allow similar “turning water into wine”. One of them is the “repo” and not just the simple “repo” but the expansion of what a “repo” could do, to multiples of the same uses of the same collateral behind the repo.
With a repo a borrower puts up collateral in the form of securities (usually something very liquid like a Treasury note) and receives cash from a lender with an agreement to buy back the repo later (a day, or any set time period, even years).
Since the lender owns a very liquid security, the lender can do another repo with it, raising more cash to play with - now the same asset is suppose to stand behind maybe twice its value. The process can be repeated as often as a lender is willing to take the risk of creating another debt against the same collateral-asset again. This is known as rehypothecation, a fancy term for what basically creates a money multiplier just like fractional-fiat money banking. This is generating additional trillons of “new money” and most of it is processed and held out of the traditional banking system.
In other words, there is more excess “money printing” going on than just what can be discerned in the Fed and Treasury figures.
And some of the extra dollars leaving U.S. shores to buy assets abroad? some of it is being generated from the shadow banking system.
If deflation hits it will be even bigger than the author suggests because the actual debt bubble (lending) is even bigger than the official figures suggest.
Disinflation/deflation and Inflation will continue.
The former in assets, the latter in consumables.
Overall, deflation first followed by inflation.
My read is that the eventual inflation will not be hyper or even as high as the Carter years. It will signal the end of the bad times. I expect inflation to begin around 2020.
Until then it looks like we will grind along as we are now, with little upturns and slide-backs.
Barring some major disaster and-/or war.
Interest rates can’t rise, because of interest rate swaps/derivatives.
If interest rates go up, the TBTF’s would find themselves owing hundreds of billions of dollars of coverage.
They truly painted themselves into a corner with that one!!
In a free market, the bond vigilantes would have demanded higher rates. But we don’t have a free market.
Agree - inflation in necessities and deflation in nice to haves. Only difference is it, the rate, will accelerate in the coming years.
That’s a site that sells gold, silver and emergency food. The article is written so as to sell some of their products, and as such has no credibility.
Provident and Apmex have plenty of junk silver. Lately I have been backing up the truck and loading up plenty of 90% silver.
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