Posted on 4th September 2012 by Administrator in Economy |Politics |Social Issues
BLS, deflation, Federal Reserve, Inflation
The Federal Reserve has inflated away 96% of the purchasing power of the dollar since 1913. If you don’t believe me, calculate it for yourself:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
So, the question is whether we will experience inflation or deflation over the next ten years.
In our age there is no such thing as ‘keeping out of politics.’ All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred and schizophrenia.
— George Orwell
Stigmation says:
Deflation at first,
There is simply not nearly enough cash to pay the debt owed. All the QE has done is inflate the Bank’s balance sheets. Little of that money is entering the economy. One the debt reset happens, I think there will be one final mad dash to cash, then the Fed will drop money bombs all over the country. Directly into people’s hands. Then it Zimbabwe Game on!
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4th September 2012 at 9:42 am
chen says:
Neither YET!, the central banks of the world are inflating whilst deflation takes place. What happens then? nothing for a while and then something bad… what that is? nobody knows
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4th September 2012 at 9:54 am
Work-In-Progress says:
Both. Inflation for the upper class and deflation for the lower class.
What the fuck do I know?
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4th September 2012 at 10:55 am
Don Murphy says:
I say both as well. Just like Weimar, etc. We will see massive inflation in the sorts of things that are needed to sustain life (food, clothing, housing and fuel mainly) but incredible deflation in everything else. Just wait a few, you will see the extra toys that people bought on credit getting sold for what is owed on the note just to get out from under it. Motorcycles, cars and trucks, boats and jetskis, computers, etc.
There may be some time period where the prices do not fall as fast as they should due to inane programs like cash for clunkers, but ultimately the toys gotta go and form, though nice, will have to follow function.
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4th September 2012 at 11:18 am
Muck About says:
Read your history.. Just back into the 1980′s.
Inflation is bad for everybody – except those whose income rises faster than the inflation rate (i.e. the top 5%). It hardest on the middle class and poor, especially with interest rates artificially suppressed so that any savings out there earns nada, capital formation is cut off at the knees and the bottom 95% are slowly pressed into penury.
Deflation will come along (maybe first, maybe not) when even the top 5% are losing ground. Then the brakes are applied and we have a Greater Depression where the top 5% have all the money and the bottom 95% are completely busted and without funds.
Paul Volcker slammed on the brakes to stop the creeping runaway inflation of the early 80′s, popping interest rates to 20%+ and we had a big fat deep hard recession that wrung out inflationary expectations in less than a year. Then it was back to business as normal.
You can’t just have business as normal in an inflationary environment because everyone eventually dumps the dollar, shedding cash by the buckets for whatever it buys just to get rid of it. that will not happen here because at that point, the top 5% can’t keep up with it.
So they will lock up the brakes, skid right into a Greater Depression (selling bonds short all the way), interest rates will rocket sending bonds into the biggest Bond Bear ever seen. But the 5% won’t own bonds by then – they will all be shoveled off on pension funds and insurance companies and the like which will promptly go broke.
But the top 5% will prosper like crazy because before they kick the economy into the ditch and light a Bond – fire (pun intended), they will already be in cash or equivalent (gold,silver, et al).
Lot of burning cars, store fronts busted in and looting will be the music of the day. But the top 5% will continue to sail their yachts, retreat to Long Island until it settles down and then figure out how to scalp any money that’s left into their pocket books.
SO: Inflation first. Then deflation like you never saw. since we’ve already lost $0.97 cents on the dollar since 1913, there isn’t much left to inflate..
MA
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4th September 2012 at 11:44 am
Hope@ZeroKelvin says:
Does it matter if the USD is no longer the world’s reserve currency or oil is traded in something other than petro-dollars?
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4th September 2012 at 12:05 pm
Stucky says:
Inflation v Deflation … thoughts from Martin Armstrong
Governments cannot see that no matter what they do, they cannot solve the debt crisis by raising taxes to pay the bondholders. This is creating such a deflationary vortex, it is the precise way all empires die by their own hand – never by hyperinflation. The bankers will not tolerate that.
HYPERINFLATION never takes place as long as government is issuing debt and suckers are buying it. The HYPERINFLATION of Germany and Zimbabwe took place BECAUSE government was unable to sell bonds. Once that takes place, all is then lost.
We are experiencing massive stagflation where the costs are rising more rapidly than economic growth and this trend is creating high unemployment that at the very best realistic number is 14% in the USA with minority youth exceeding 50%. These are trends that produce DEFLATION never HYPERINFLATION. Government is just not going to print uncontrollably
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4th September 2012 at 12:40 pm
DaveL says:
I bought my first house in 1966 with a 4.5% mortgage. I was paying like $130/month. In the late 70′s I was getting letters from the bank begging me to pay off the mortgage and even offering discounts. Why? Because interest rates had jumped to 18+% and inflation was at about 10-12%. I didn’t send them an extra dime and laughed at them.
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4th September 2012 at 12:40 pm
Stucky says:
A little more Armstrong.
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Keeping interest rates low may have the APPEARANCE of stimulation, but that effect is NOT being passed on by the banks. Interest Rates on loans, even credit cards, have not declined in proportion to the drop in interest rates at the Fed. Therefore, the deflation aspect is shifting profits to banks further bailing them out to make up for their losses in the speculation of mortgages.
NOTHING is being done to help the people or the economy whatsoever! They are NOT lowering borrowing costs of consumers or business so the Fed can pretend it is helping the economy, but it is ONLY helping the banks. If the banks passed on the low rates to borrowers, then there might be some stimulus effect.
It is NOT lower interest rates that will create inflation – but HIGHER! There are three primary factors to understand.
(1) Keeping rates low (really negative) insofar as what banks are paying people for their cash, makes things like holding physical gold less onerous because you are not losing interest income.
(2) Eventually the low rates will NOT stimulate borrowing, but a migration of capital from cash to private assets including stock where there is a real rate of return in dividends not attainable in a bank and this sets the stage for rising rates as there becomes LESS cash on deposit at the banks – COMPETITION.
(3) When rates rise, this will send the government deficits into hype-active status causing the Sovereign Debt Crisis to accelerate.
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4th September 2012 at 12:43 pm
Bob says:
Deflation is likely to come first, but it will not last 10 years. Maybe 4 at most. The deflation of the Great Depression was over in 2 years — its effects played out over most of the following decade. Expect the same kind of scenario, stretched out because of the greater severity of the problem this time around.
Hyperinflation afterwards? Possible, but not a given. Perhaps a new approach?
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4th September 2012 at 4:01 pm
card802 says:
I think we’ll have stagflation. Prices of consumables like food and energy will rise, prices of goods like clothing will fall, wages will remain steady or fall, they will not rise. QE or whatever the fed will call their “help” will continue to the end. Then riots, then military shooting us domestic terrorist, then civil war, then China takes us over and we make them shit for pennies a week.
The end.
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4th September 2012 at 4:43 pm
DaveL says:
Stucky says:”Therefore, the deflation aspect is shifting profits to banks further bailing them out to make up for their losses in the speculation of mortgages.”
Agree completely. The original 750 billion TARP wasn’t close to enough so we have nothing more than another kind of bailout because the public wouldn’t stand for another TARP.
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4th September 2012 at 5:23 pm
prtrb'd says:
The US is losing it’s reserve currency status. Oil being priced in other currencies, etc. The US will need to provide increasing incentive for others to hold their dollars. Incentive equals higher interest rates. Higher interest rates make for increased interest obligation by the US. The ONLY way to meet those obligations is by printing more money, the hole is too deep now. Expansion of the money supply is the definition of inflation, the snowball effect equates to hyper-inflation. Sure there will be pricing variations along the way, but there is no way to seriously contract the money supply at this point because interest obligations will be met for as long as possible so as to keep the farce going long as possible. It will be default by dilution. and eventually a reset to a new currency as the current currency becomes worth less and less and less. Gold and silver will maintain, nay, increase value – paper will burn. History tells us so. Pretty simple really.
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4th September 2012 at 12:33 am