Investment

» permabear - That 70s look: Staglation

http://www.nytimes.com/2008/02/21/busine...

-- posted by permabear

» permabear - Why inflation will trump deflation

http://safehaven.com/article-9527.htm

-- posted by permabear

» Normxxx - Why inflation will NOT trump deflation

I read your very interesting piece above- lots of what ifs towards the end... (WHAT IF my grandmother had had wheels...why, she'd have been a trolleycar!)

I am not any more convinced of the above than I am by the deflationists arguments.

1. We are talking about a World Wide DEflation; not just a US deflation!

2. No rational enterprise (especially one semi-divorced from politics, such as the Fed) will risk hyperinflation, with the example of Weimar Germany's hyperinflation still fresh in (a few) living memories.

3. In the end, remember that the members of the Fed Reserve are all PRIVATE banks which will not operate to begger themselves! It is why the US suffered through four years of DEflation (1929 - 1933) rather than "upset the apple cart." (Had everyone then just declared bankruptcy rather than pay back debt in deflated dollars, the depression may have ended much sooner, e.g., by 1935, possibly by some form of revolution, as in other countries.)

-- posted by Normxxx

» permabear - Why inflation will NOT trump deflation

In response to Why inflation will NOT trump deflation posted by Normxxx:

My position is that as long as Bernanke is Fed Chairman, he will do everything in his power to avoid deflation, ala the 1930s. Bernanke is a student of the Great Depression. He has written academic papers on mistakes that the Fed made in the early 1930s. The paper I posted the other day shows that he has a strategy already mapped out to avoid deflation. Bernanke is not going to preside over a repeat of the 1930s.

You may be right about the worldwide reaction. Look at the difference between how the ECB is approaching the current credit crisis and the U.S. The ECB has held the line on interest rate cuts while the Fed has gone nuts lowering rates. Worldwide reaction to economic events can dictate individual country outcomes. I believe the U.S. is in an era of fix it now. We see it with interest rates. We see it with today's announcement of a coming fix for the bond insurers. We see it in our Republican administration's attempts to alleviate the housing bust and the $170 billion stimulus package at at time that unemployment remains at the comparatively low rate below 5 percent. There is media and larger public pressure to solve problems now. The media and public is not going to stand by as deflation kicks in. They will actions to fight the deflation. They will want the government to solve the problem. For all these reasons I am sticking with the inflation side winning, at least in the U.S.

-- posted by permabear

» Normxxx - Why inflation will NOT trump deflation

In response to Why inflation will NOT trump deflation posted by permabear:

The ECB has held the line on interest rate cuts while the Fed has gone nuts lowering rates.

Inflation is worse in the EU (or, at least they think it is- Germany will resist inflation at all costs!) But, they will cut later this year. UK is already cutting, and France is frothing at the mouth for cuts.

The media and public is not going to stand by as deflation kicks in. They will actions to fight the deflation. They will want the government to solve the problem.

Why? What are the terrible consequences of deflation that the average American will even notice, except for falling prices. Japan has lived with deflation, off and on, since the early '90s, but the Japanese are not terribly restive!?! Loss of jobs? That's been endemic in our economy for several decades...off and on. Unlike the '30s, salaries will NOT be cut on this go 'round; layoffs will be used to reduce overhead costs instead- what do you think the big 3 auto makers are in the midst of if not DEflation!

A Recession Election?

-- posted by Normxxx

» permabear - Why inflation will NOT trump deflation

In response to Why inflation will NOT trump deflation posted by Normxxx:

Why? What are the terrible consequences of deflation that the average American will even notice, except for falling prices. Japan has lived with deflation, off and on, since the early '90s, but the Japanese are not terribly restive!?! Loss of jobs? That's been endemic in our economy for several decades...off and on. Unlike the '30s, salaries will NOT be cut on this go 'round; layoffs will be used to reduce overhead costs instead- what do you think the big 3 auto makers are in the midst of if not DEflation!

The U.S. is in a very different position than Japan was 18 years ago. Japan was a huge creditor nation. The U.S. is a huge debtor nation. Japan has been able to live with its mild deflation, though it probably would have been better for writing off all those losses and experiencing a more severe recession back in the early 90s. If the U.S. goes into a severe recession, think of all of the ramifications. The budget deficit will rise out of control. States and localities would be in deep financial mess (Vallejo, CA is near bankruptcy today). With all of the huge amount of debt that consumers, banks and government face in the U.S., a deflation would not be of the mild variety. I think the only choice is reflation, and that's what I predict will be the response.

-- posted by permabear

» Normxxx - Why inflation will NOT trump deflation

In response to Why inflation will NOT trump deflation posted by permabear:

I think the only choice is reflation, and that's what I predict will be the response.

Perhaps. But, the Fed is not ALL powerful, and it may well be out of their hands- it's why I am predicting something not seen before: waves of inflation/deflation, or the two simultaneously... Best prepare for ALL eventualities.

-- posted by Normxxx

» Jas_Jain - Re: Why inflation will NOT trump deflation

In response to Why inflation will NOT trump deflation posted by permabear:

--
"My position is that as long as Bernanke is Fed Chairman, he will do everything in his power to avoid deflation, ala the 1930s. Bernanke is a student of the Great Depression."

With all due respect, Perma, this is getting absurd. Can an academic succeed at whatever outcome he wants? The guy is a moron when it comes to practical world of economics, which is about HUMAN BEHAVIOR. You never answered by objections about his glaring failures in March, about home prices, and July of 2007 about the economy.

BERNANKE WANTED FISCAL STIMULUS SO BAD AND QUICKLY BECAUSE HE REALIZED THAT THE MONETARY POLICY WASN'T DOING THE JOB OF INCREASING "THE AGGREGATE DEMAND," WHICH IS WANT IS **** NEEDED**** TO INCREASE INFLATION, OR FIGHT DEFLATION.

Jas

-- posted by Jas_Jain

» permabear - Re: Why inflation will NOT trump deflation

In response to Re: Why inflation will NOT trump deflation posted by Jas_Jain:

From the Bernanke paper I posted the other day on the Bond board:

As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.

-- posted by permabear

» permabear - Why inflation will NOT trump deflation

In response to Why inflation will NOT trump deflation posted by Normxxx:

Norm,

You were sounding more like Jas with every post. But with this post you diverge. I can't argue with your logic here. We are in unprecedented times. The coming storm will not be a repeat of the Great Depression, nor will it be a repeat of the Weimar Republic or Zimbabwe. Developments are going to create a history of their own, and no one can predict the outcome because the variables are so great. The best we can do is place bets. My bet is placed on a falling dollar and gold.

-- posted by permabear