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Continuing Deflation In The “Real Economy” By Bill Bonner 11/10/09 Montevideo, Uruguay – Financiers have the world’s financial system in a “doom loop,” says the Bank of England. We’ve thought so ourselves. The bankers take money from the government and use it to speculate, not to lend. “Excess” reserves are at a record high as consumer credit continues to decline. Most people find it both galling and absurd to see the bankers getting $10 million bonuses while there is 10% unemployment. Here at The Daily Reckoning, it’s just a matter of curiosity. You’d think there would be more wage competition...

Demand continues to be strong – even Harrods, the famous Knightsbridge store, is getting in on the act by selling gold bars and coins to its upmarket customers. Gold has returned more than 20pc over the past year but the question remains: how high can the price of gold go? Here are the thoughts of analysts taken from around the globe. Suki Cooper, commodities analyst, Barclays Capital Ms Cooper said: “We expect prices to maintain their upward momentum through to at least the first half of 2010, where we expect prices to average $1,140 in the second quarter. The unexpected...

The Path To Runaway U.S. Inflation Economics / Inflation Nov 06, 2009 - 10:35 AM By: Ganesh_Rathnam "I see green shoots," said Fed Chairman Ben Bernanke on 60 Minutes back in March, doing his best rendition of Haley Joel Osment from the movie The Sixth Sense. Since then, every poor economic headline in the lapdog media has been preceded with the word "unexpected," as if the clueless chairman's pronouncements were suddenly the Gospel, and the economy had indeed recovered. Phantom US Economic Recovery Common sense tells us that if phenomenon A causes problem B, then B cannot be rectified unless...

NEW YORK, Nov 6 (Reuters) - Gold futures in New York rose to a record above $1,100 per ounce on Friday as the dollar eased in the wake of disappointing U.S. employment data. At 9:48 a.m. EST (1448 GMT) December gold GCZ9 was up $10.20 at $1,099.50 an ounce at the COMEX division of the New York Mercantile Exchange, having topped at $1,101.90 in morning trade. Spot gold XAU= reached a record at $1,100.90 per ounce.

{snip ...] "Since interest rates are zero, you can borrow dollars at no cost at all and use them around the globe," says Jeffrey Kleintop, chief market strategist of LPL Financial, a privately held brokerage firm based in Boston. "For example," explains Kleintop, you can borrow dollars at zero, and invest in Brazilian bonds yielding 5.2%. As the real (Brazil's currency) has risen 26% against the dollar so far in 2009, such a carry trade would have earned 31%, or double the loss of value in the dollar. Gold and oil, especially, have an inverse relationship to the dollar, underscores...

NEW YORK (MarketWatch) -- The U.S. and the global economy will experience massive deflationary forces through 2012, said Nouriel Roubini, economist at New York University, Wednesday. At a conference, Roubini said that although easy monetary policies have fueled another asset bubble, the deflationary forces coming from industrial overcapacity, falling labor costs and a still damaged financial system will prevail over the next two years.

Is Debt-Deflation Economic Depression Just Beginning? Economics / Great Depression II Nov 02, 2009 - 03:12 AM By: Mike_Shedlock Last Thursday I received an email from David Meier, Associate Advisor at the MotleyFool concerning Debt-Deflation. David asked if I had any comments on his article Debt-deflation: Just the beginning? Here is a partial listing: The debate rages on. Is inflation or deflation the bigger threat? There are lots of people -- lots of smart people -- on both sides of the debate and they present lots of good arguments. One thing that I have not seen -- and maybe I...

Buy Food – Price Rises Are Almost Guaranteed By Garry White Published: 7:50PM GMT 25 Oct 2009 There are two main drivers of commodity prices – supply and demand. This is just as true with soft commodities such as wheat, rice, sugar and cocoa as it is with copper and tin. The big problem for your weekly shopping budget in the future is that there are problems on both sides of the equation that are likely to squeeze prices higher, permanently. However, this also provides a great investment opportunity and now is a good time to buy into many areas...

Deflation Fears As Eurozone And US Credit ContractsBank lending to firms and households in the eurozone has fallen for the first time, raising fears of an economic relapse and a slide into deflation next year. By Ambrose Evans-Pritchard Published: 8:26PM GMT 27 Oct 2009 Data from the European Central Bank shows that the M3 broad money supply has contracted over the last six months, confounding expectations that ultra-low interest rates would soon boost monetary growth. Loans to the private sector fell 0.3pc from a year earlier, the first such decline since the data started in 1983. The M3 figures include...

U.S. Faces Second Lost Economic Decade Because Of Misguided Stimulus Economics / Great Depression II Oct 23, 2009 - 04:00 PM By: Mike_Shedlock Japan has gone through two lost decades, in and out of deflation, with nothing to show for it but increasing debt to GDP and a stock market still 70% below its peak. Now, Richard Koo of Nomura Research Institute Ltd. says U.S. Risks Japan-Like ‘Lost Decade’ on Stimulus Exit. U.S. officials contemplating an exit from record fiscal stimulus are in danger of repeating mistakes that plunged Japan into its lost decade of stagnant growth, according to Richard...

Harry Dent Sees A Big Crash Coming, Urges Investors To Prepare By Rocky Vega 10/20/09 Stockholm, Sweden – In an interview with Moneynews, Harry Dent, author of The Roaring 2000s Investor and The Great Depression Ahead, said that “deflation in turn will trigger crashes in stocks, bonds and real estate.” According to Dent, the deflation will be caused by “way too much debt in our system,” and he advises investors to stay in cash. His debt calculation includes corporate at $11 trillion, government at $14 trillion, and the financial sector at $17 trillion. The solution he suggests is that “we...

PPI: Freezing ("Below Zero" Deflation Alert)y Karl DenningerOctober 20,2009 But I thought Bennie And The Feds programs were working? The Producer Price Index for Finished Goods declined 0.6 percent in September, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decrease followed a 1.7-percent rise in August and a 0.9-percent decline in July. In September, at the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 0.2 percent and the crude goods index fell 2.1 percent. On an unadjusted basis, from September 2008 to September 2009, prices for finished...

US Hyperinflation? By Chuck Butler10/20/09 St. Louis, Missouri – The finance ministers of the Eurozone met yesterday and they’ve tried to stem the euro’s (EUR) rise… But they’ll need more than words to get the job done! And so we begin a new day… Front and center this morning, the currencies – which had given background overnight to the dollar – are back in rally mode, and are taking liberties with the dollar once more. For most of the night, that was not the case, though. The dollar had rallied back and sent the euro, for instance, to the 1.48...

Producer Prices Plunge Joe WeisenthalOct. 20, 2009, 9:15 AM Today's PPI for October showed deeper deflation than anyone expected. The Producer Price Index for Finished Goods declined 0.6 percent in September, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decrease followed a 1.7-percent rise in August and a 0.9-percent decline in July. In September, at the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 0.2 percent and the crude goods index fell 2.1 percent. On an unadjusted basis, from September 2008 to September 2009, prices for finished...

Three Asset Classes That Can Actually Outpace Coming Inflationary Price Increases by: Paco Ahlgren October 19, 2009 This “Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge." - Alan Greenspan, June 25, 2009 "The US economy may witness double-digit inflation in a few years unless the central bank tightens up its monetary policy… Unless we roll in this whole degree of expansion, we will be in trouble… I am not talking 3-5 per cent inflation, I am talking double-digit inflation in the US.” - Alan Greenspan, September 9, 2009 -- Man, the Dow...

In 2001 the late Jude Wanniski observed in the American Spectator that "Only when we fully grasp the importance of this definition of inflation or deflation will we be able to understand how to rid the world of these twin evils." Wanniski knew well that it is the instability in the value of the money that drives major economic error. When money is fluctuating in value, the money prices of all investments become distorted and mistakes are made. During periods of inflation, capital moves into the assets of the earth such as housing and gold that are least vulnerable to...

Japan A Deflation Death? - Nope Stagflation Oct 17, 2009 - 12:29 PM By: Phill_Tomlinson Gordon Brown this week announced what can only be described as a car boot sale of UK PLC's bric-a-brac goods, an attempt to sooth markets regarding the budget deficit. Many of the items have been for sale before, but I'm sure the government in their current desperation will be willing to accept lower offers this time around. I agree with privatisation in getting the state out of our lives, but a student loan book and a crossing in Kent are hardly big ticket items, never...

The New Global Balance – Part II: Higher Rates Rather Than Weaker Dollar In 2010 Christian Broda Piero Ghezzi Eduardo Levy-Yeyati 16 October 2009 Many expect the dollar to continue to depreciate over the foreseeable future. This column suggests that it may strengthen in 2010 if the Federal Reserve exits quantitative easing sooner than its counterparts and the US economy enjoys a strong rebound. In the early months of the crisis at the end of 2008, the US dollar rose sharply as US interest rates fell sharply (IMF 2009). In a previous column, we argued that the puzzling response of...

Deflation Could Cause First Minimum Wage Cut Ever Vincent FernandoOct. 15, 2009, 1:34 PM Deflationary forces might take their toll in a very tangible way for Colorado's minimum wage earners. The state could be the first ever to adjust down minimum wage due to a falling consumer price index. While the minimum wage will only fall four cents per hour, if passed it will clearly be an extraordinary example of discipline. USA Today: Other states with adjustable minimum wages have seen their consumer price indexes fall, such as Ohio. But Colorado is one of the few states where the law...

{snip} Currently, dollars account for about 62 percent of the currency reserve at central banks -- the lowest on record, said the International Monetary Fund. Bernanke could go down in economic history as the man who killed the greenback on the operating table. After printing up trillions of new dollars and new bonds to stimulate the US economy, the Federal Reserve chief is now boxed into a corner battling two separate monsters that could devour the economy -- ravenous inflation on one hand, and a perilous recession on the other. "He's in a crisis worse than the meltdown ever was,"...

Inflation Sinks to Five-Year Low On Lower Utility And Food BillsInflation fell more sharply than expected in September, hitting a five-year low of 1.1pc, on lower utility and food bills. By Angela Monaghan Published: 7:16PM BST 13 Oct 2009 Economists had expected the consumer prices index (CPI) to fall less steeply to 1.3pc from 1.6pc in August. The main drivers of the drop, revealed in data published by the Office for National Statistics yesterday, were a 7.2pc fall in electricity prices and a 5.6pc fall in gas prices compared with a year ago. It was the fourth month in a...

Trending Towards Hyperinflation Economics / HyperInflation Oct 09, 2009 - 04:00 PM By: Paul_Tustain Seven short steps to the cost of living doubling or more inside 3 years... HYPERINFLATION is widely accepted as a period of out of control price rises, doubling the cost of living inside three years. It occurs when a currency loses its ability to store value, encouraging long-term savings to pour into circulation where they swamp the much narrower supply of consumer money, and cause the whole lot to lose purchasing power. There is no specific recipe, but the pattern we risk repeating today would be...

Faces of Death: The U.S. Dollar in Crisis by: Ron Hera October 09, 2009 /snip Following two sequential economic bubbles, the dot-com bubble and the real estate bubble, no one has yet correctly called either the bottom for the US economy or the start of a US economic recovery. Nonetheless, each day, news reports, articles and statements by officials and commentators reveal new economic data and offer new analysis. Unfortunately, both the economic data and the interpretations offered by officials and commentators are contradictory. It appears that both inflation and deflation are occurring at the same time; that the US...

It's not only the energy markets that threaten the 'low inflation' data now encouraging bondholders to keep buying... THE PUBLISHED INFLATION DATA are surprisingly unsophisticated in so far as they compare current prices with a snapshot a year earlier. Just over a year ago, oil was every hedge fund manager's favorite speculation. In summer 2008 a barrel got to well over $140, before falling sharply back. You may remember the food riots of early 2008, and how they seem to have disappeared. Well, that occurred after a small dip in world grain production in 2007. Fortunately, by its end, 2008...

On the Edge With Max Keiser, Risk of Deflationary Economic Collapse Economics / Deflation Oct 04, 2009 - 02:35 PM By: Mike_Shedlock Janet Tavakoli is On The Edge With Max Keiser. Tavakoli says the Risk of deflationary collapse greater now than in 2007. We’ve just interviewed Janet Tavakoli for our first episode of The Keiser Report. If you don’t know her, you should. She wrote a fantastic book, Dear Mr. Buffett. Max and I are on our second read of it. You really must get this book if you want to understand derivatives from one of the foremost experts on...

We Are Certainly in a Deflationary Economic State Oct 02, 2009 - 07:20 AM By: Mike_Shedlock Fueled by overcapacity, shrinking credit, reduced corporate spending and falling consumer demand, Deflation is taking root in global economies. Consumer prices fell at their fastest clip ever last month in Japan, which has been fighting a losing war against deflation for much of the past two decades. Germany, Europe's biggest economy, has now suffered through four consecutive months of sliding prices, and the rest of the region that uses the euro is not faring much better. That deflation should be such a threat may...

Japan is sliding into the deepest deflation since the Second World War, forcing the new-broom Democrats to abandon their strong yen policy within weeks of taking office. BY AMBROSE EVANS-PRITCHARD Core inflation fell a record 2.4pc in September, a steeper drop than at any time during the country's Lost Decade. A surging yen is twisting the knife further. The currency has risen 22pc against the euro, 27pc against the dollar, and 43pc against sterling since mid-2007. Hirohisa Fujii, finance minister, ditched his non-intervention policy yesterday, saying Tokyo would "take necessary steps" to prevent disorderly currency moves. Yen strength is asphyxiating...

Japan prices tumble at record rate in August Japan core consumer price index falls by record 2.4 percent in August By Tomoko A. Hosaka, Associated Press Writer On Monday September 28, 2009, 9:17 pm EDT TOKYO (AP) -- Prices in Japan tumbled at a record pace in August, intensifying concerns that deflation could undermine the country's fragile economic recovery. The country's key consumer price index, which excludes volatile fresh food prices, fell 2.4 percent from a year earlier amid rising unemployment and falling wages, the government said Tuesday. The figure marks the steepest decline since officials began compiling comparable data...

Gold bullion just crossed $1,000 an ounce. But what's it really worth? Bud Conrad, chief economist at Casey Research and a leading gold bug, says it's worth far more. Based on long-term analyses of macroeconomic trends such as the money supply, he says, "a lot of ratios… get you into the $4,000 to $5,000 level without any problem. Congressman and former presidential candidate Ron Paul also a major gold bug likewise sees the price of bullion rising from today's levels. "It's trebled in the last ten years," he says. "There's no reason it can't triple in another ten years, that...

WASHINGTON (AP) -- Worker productivity, the single biggest factor determining living standards, grew at the fastest pace in nearly six years in the spring while labor costs fell by the most in nine years, as companies slashed costs to survive the recession.

Now that we are just about 2 years into the world financial/credit crisis, it’s time to ask what is next in one or two years. One is to ask will stagflation emerge in 2010 and after? We may be moving from a two year crisis stage to a post stage of stagflation that lasts years. There are several aspects to clarify first. First, assuming there is NOT another credit meltdown this Fall/Winter, and the USD does NOT have a big devaluation event, but rather tails down gradually, then I expect stagflation to emerge. The US and Western economy could do...

In recent weeks and months, there’s been much public debate in the financial press whether we’re going to hyper-inflate or suffer a deflationary collapse? I know this to be the case because I field many questions about this topic from readers around the world on a regular basis. To better understand which of these two competing forces will ultimately win the day, let’s consider the following observable basics: * In a hyper-inflation, the value of currency [in this case, fiat money] is driven toward zero as prices rise. * In a deflationary collapse, the value of currency increases as prices...

The developed world has not shaken off the risk of sliding into a deflation trap, experts warned after new figures showed that prices in both the eurozone and the US are falling. Consumer prices in America slipped by 2.1pc in the year to July, according to official data released yesterday. It coincided with Eurostat figures showing that the eurozone's consumer price index dropped by 0.7pc in the past year, compared with deflation of 0.1pc in June. The figures underline concerns that despite the sharp rebound in a variety of economic indicators, and despite news that France and Germany have both...

There is one overwhelming fact about the world economy that cannot be wished away. Excess capacity in industry is hovering at levels not seen since the Great Depression. Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then...

No, I’m not being over-dramatic. It is time to buckle the heck up. The resonant disconnect between reality and the pumping that is going on in the media and among supposed “experts” is at an all time historic, never been here before, Economic Mass Psychosis, HIGH. To Quote John Kenneth Galbraith, “The majority is always wrong.” Right now the majority believe we are exiting the crisis. They are just plain old fashioned WRONG – again. To prove my point, I’m going to show you the week in charts courtesy of the St. Louis Fed. This week, however, I’m issuing a...

The Bank of England will downgrade its growth forecasts and issue a warning this week that the UK economy risks slumping into a debt deflation trap, the Telegraph reported on Monday. The newspaper said BoE Governor Mervyn King will use the Bank's Inflation Report on Wednesday to say the risk of such a slump was one of the main reasons behind the bank's surprise decision last week to extend its quantitative easing programme.

Zero Hedge, in collaboration with David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates, Inc., is pleased to release the attached analysis "The End Of The End Of The Recession." It is our hope that this piece will provide some badly-needed perspective on "the recession is over" debate, a topic that has become as one-sided as it is wrong-headed. Our purposes is to promote rational, informed discourse on the subject and to this end we enthusiastically solicit reader feedback.

One of the most important debates now occurring in the public forum is whether the economy will be hobbled by crippling inflation, hobbled by crippling deflation, or somehow muddle through without much of either. Too much of the debate seems to regard inflation and deflation as things that somehow just occur in an economy, rather than as choices that we, as the participants in the economy, make. While that view of in/deflation is correct in some circumstances, it is not correct for the circumstances we find ourselves in currently. Instead, we need to realize that whether we have inflation or...

One of the key issues investors have to make a decision on in the next couple of years is what the likely profile for inflation is going to be and how it will affect their investment decisions. Some have framed this decision as being one between deflation and hyper inflation. Even if we ignore the somewhat ridiculous “hyper” element of the choice, the implications for financial assets are hugely different. If we see deflation then the obvious choice is government bonds, with equities likely to struggle and commodities still more so, while index linked bonds are likely to be a...

"There has never been a period in US history when home prices have been falling and we have had real inflation... one must also consider the staggering reduction of consumer credit in the US and global economy... Due to the incredible level of credit contraction within the US, most of the money being put into the banking system by the government is not making it back into the economy. In general, banks are acting as they should by evaluating the overall lending risks in our economy and implementing tighter (more appropriate) lending standards. Under this regime few are willing to...

The recession is not over. Investors will soon return to worrying about deflation and weak share earnings. Despite a 31% gain in the S&P 500 since Mar. 9 reports of the bear market's demise are greatly exaggerated. There have been statistics that suggest otherwise--that the economic decline is tapering off or that green shoots are sprouting on the economic landscape--but before you kick your shoes off and frolic in the foliage, take a hard look at the stock rally and our economy. The stock market is exhausted, and I think investors are again worrying about the reality of a deepening...

The World Bank has given warning that global economy will fall into a "deflationary spiral" unless urgent action is taken to reduce high levels of excess capacity in industry. Justin Lin, the bank’s chief economist, said factories running idle around world threaten to trap economies in a vicious cycle, risking further spasms of financial stress, requiring yet more rescue packages. "Significant excess capacity has been built up and unless this issue is addressed, we will face a deflationary spiral and the crisis will become protracted," he told an audience in Cape Town.

The present deflation is worth putting in context. Below (click to enlarge) is the annual rate of CPI change since 1913: We are in the first deflation since the Great Depression, albeit a mild one. In fact, raw materials prices have fallen just as far, but our consumption basket has shifted to items whose prices are slower to deflate. Note that the great deflation of 1929-1933 is followed by a brief increase in inflation (to a 5% year on year CPI gain) before falling back into negative numbers. This was the result of FDR’s devaluation of the dollar against gold,...

WHAT'S IN STORE FOR US: Japan of the 90's or Argentina of 2002? by John Lee, CFA Portfolio Manager, Mau Capital July 2, 2009 Introduction The inflation / deflation debate in the US is still alive and well. In deflation camp, there is the rising star du-jour Nouriel Roubini and old timer Robert Prechter. They argue the debt collapse would cause price deflation and depress world economies for years to come. The inflation camp includes Jim Rogers and Marc Faber, who said on May 27 2009 that "I am 100 percent sure that the U.S. will go into hyperinflation "...

Many are the obstructions to the so-called (mislabeled) deflation threat within the US Economy. To begin with, falling asset prices does not constitute deflation. One of the primary objectives of the banking elite in firm control of the USGovt and US Congress is to confuse the public and investment community on the entire topic of inflation, what it is, how it is measured, and its risks. The same goes for deflation. All debate as to whether the Untied States will suffer from inflation or deflation is a horrible misdirected distraction that manifests the confusion. The US will suffer both higher...

I don't know if it's safe to copy this newsletter, but the excerpt below pretty much sums it up. "Bottom line: The first quarter brought the greatest credit collapse of all time."

Record fall in Japan consumer prices fuels deflation fears By The Associated Press TOKYO - Deflation is clawing its way back in Japan, and it's not good news for an economy trying to recover from its worst recession since the Second World War. Japan's key consumer price index tumbled at a record pace in May, the government said Friday. The core nationwide CPI, which excludes volatile fresh food prices, fell 1.1 per cent from the previous year in the third straight month of decline. The result marked the biggest fall since the government began releasing comparable data in 1971.

Japanese consumer prices fell a record 1.1 per cent in the year to May, with falling demand increasingly blamed as the country’s second bout of deflation in less than two years deepens. The slide may make the Bank of Japan less willing to end unconventional policies due to expire in September. But the central bank will likely stop short of a return to full-blown quantitative easing as the world’s second largest economy is expected to resume growing after contracting for a full year, analysts say. “Deflation is getting worse and underscores that the BOJ cannot move for a considerable time,”...

Shoppers saw lower prices at the supermarket in June, but falling costs may spell trouble for struggling Alabama farmers. According to a food price survey complied by the Alabama Farmers Federation, the price of 20 basic market items including milk, eggs and bacon, fell in June. The market basket averaged $51.60 the first week of June, down 58 cents from a month earlier. Prices of dairy products such as cottage cheese and milk dropped sharply. Falling costs can be linked to an oversupply of milk that is flooding the market, the federation said in a news release. The average cost...

In a recent speech before the clients of research firm Applied Finance Group, Entropy Economics president Bret Swanson showed an ad from 1989 which featured "the most powerful computer ever!" The Tandy 5000 MC Professional System retailed for $8,499, mouse and monitor not included. Further on in the presentation, Swanson noted that while Dell Computer customers can today purchase a 1 terabyte storage drive for $150, back in 1992 that same computer capability would have set the average consumer back $5,000,000. Translated, for a small fraction of what they would have paid roughly 17 years ago, consumers today can buy...