Deflation or inflation? Vote now

dopester

deflation

Carolt you know I've been very annoying in repeatedly warning that we are heading for deflation for well over 1 year now. Now deflation fears are becoming more of a topic of discussion - on whether it is or whether it isn't. "How can it be; look at this look at that?".... when it is clear to me it is just the transition-phase into full-scale deflation.

Deflation, because, apart from essentials, including energy and food, I'm not buying any product or service from businesses which are jacking up their prices - where I need to look after my income/savings and can't afford to go out buying anything I want - a path so many people are increasingly being forced to follow.

Let their products sit on the shelves, or their services go unused, if they can't adjust to the new reality where there is less money in the economy, and their prices are reduced to levels which support demand whilst also allowing profit.

Some other business will come in to fill the void, and still make profit, at cheaper rates which reflect prevailing and future deflationary conditions.

We have an economy in which there is less credit about (either wanted by the credit-worthy / and refused to the non-creditworthy).

Where personal savings rates are low (and those with savings are mostly getting poor rates of return) - and existing debt loads are very high. Where both house prices crashing and stock market falls have wiped out £trillions in personal wealth values. Companies which could only survive in boom conditions going under, and others who expected the boom to last forever and took decisions to expand and take on more debt based on that now buckling. Rising unemployment and pay-cuts.

The deflationary pressures are more immense than you realise, and Governments have very limited powers to prevent it, else run the risk of wiping out everyone in the economy - which is an even worse outcome. The powers of leverage in play is creating losses in the system of a near unimaginable kind.

When the news is bad and apt to get worse you cannot draw your bearings about the economy or the market from channels of mass communications.

This is a game that President Hoover, in retirement, described as "sustaining the morale of the people." (Gordon Brown - "best placed to weather the storm")

In spite of these often well-intended gestures, the economy will shift into a contraction that the government will be powerless to abate. Asset prices, especially real estate and stock, will tumble. Credit will contract.

Governments hungry for reelection will panic as the asset contraction gathers force. Their first response will be an attempt to counter the contraction with easy money.

The bad debts of all large borrowers could be added to the government's balance sheet. Central banks could essentially become national pawn shops - economy wide holding companies of insolvent institutions. They could end up owning many banks, perhaps some insurance companies, and a great deal of real estate.

We do not know how long this first state will last, because we do not know how concerted and reckless the government's attempt to rescue bad debts will be. The assumption that it will go to extremes permeates the financial life of the United States as well as other advanced democracies. But this assumption is based upon promises intended to forestall a credit collapse.

Once such a collapse has clearly begun, authorities will probably move to minimise the damage in a bad situation by abandoning the attempt to pay every bad debt. But they will not back down until the market has shown them that they must.

Few will be persuaded by the arguments that deflation would be less costly than runaway inflation. These arguments will have to be proven by the markets.

Paradoxically, that is more apt to happen when the markets are focusing on the dangers of inflation. Therefore, you can expect that fears and alarms about pending inflation will be on everyone's lips, even as deflation takes hold.

The newspapers are likely to run page one headlines about inflationary actions. Analysts who closely follow central bank policy will warn of debasement of the currency and Latin American style inflation.

tomterm8

mystic_trev wrote: »

What we're actually heading towards (if not already in) is Biflation

http://en.wikipedia.org/wiki/Biflation

Nah, I think we are suffering from economoflation, the tendency of economicists* to predict the future performance of the economy as like todays performance but bigger.

* defined as the science of having three hands and a research budget.

mewbie_2

inflation

I was hoping for something like fellation but I guess it's not to be.

Kev09

inflation

dopester wrote: »

Carolt you know I've been very annoying in repeatedly warning that we are heading for deflation for well over 1 year now. Now deflation fears are becoming more of a topic of discussion - on whether it is or whether it isn't. "How can it be; look at this look at that?".... when it is clear to me it is just the transition-phase into full-scale deflation.

Deflation, because, apart from essentials, including energy and food, I'm not buying any product or service from businesses which are jacking up their prices - where I need to look after my income/savings and can't afford to go out buying anything I want - a path so many people are increasingly being forced to follow.

Let their products sit on the shelves, or their services go unused, if they can't adjust to the new reality where there is less money in the economy, and their prices are reduced to levels which support demand whilst also allowing profit.

Some other business will come in to fill the void, and still make profit, at cheaper rates which reflect prevailing and future deflationary conditions.

We have an economy in which there is less credit about (either wanted by the credit-worthy / and refused to the non-creditworthy).

Where personal savings rates are low (and those with savings are mostly getting poor rates of return) - and existing debt loads are very high. Where both house prices crashing and stock market falls have wiped out £trillions in personal wealth values. Companies which could only survive in boom conditions going under, and others who expected the boom to last forever and took decisions to expand and take on more debt based on that now buckling. Rising unemployment and pay-cuts.

The deflationary pressures are more immense than you realise, and Governments have very limited powers to prevent it, else run the risk of wiping out everyone in the economy - which is an even worse outcome. The powers of leverage in play is creating losses in the system of a near unimaginable kind.

Dopester you are wrong its Inflation all the way for me!!!!!!!!!!!!!!!!!

I am involved in a couple of business both have seen price rises for two main reasons.

1) We manufacture very little in the UK, as the £ has weakened so the price of many of my goods have risen substantially, we operate on very tight margin and have had no option but to increase our prices but sales have remained good as all my competitors have had to increase theirs as well and some weak ones who borrowed to much have went bust.

2) Some suppliers of mine are obviously run by accountants and the first thing they do when they see falling sales is to increase prices to maintain sales figures.

Both these factors are highly inflationary! but take quite a while to filter through to the so called "real" economy!

dopester

deflation

Kev09 wrote: »

Some suppliers of mine are obviously run by accountants and the first thing they do when they see falling sales is to increase prices to maintain sales figures.

Both these factors are highly inflationary! but take quite a while to filter through to the so called "real" economy!

Yes. Ford and other car-manufacturers are raising their prices too.

Obviously that is increasing their sales figures.

Companies going to the wall, rising unemployment, pay-cuts, savings getting little interest, trillion of pounds in stock market wealth disappeared in to the vortex, house prices lost trillions of pounds in value... credit hard to get or not wanted by the credit worthy in retrenchment.

Yes... raise the prices all you want - and lets see your sales figures boom as your customers go in to a purchasing frenzy. :rolleyes:

I either won't buy at old-world prices, or wait till prices have to fall, or go to your competitor, or new business, who are willing to lower their prices to better match market conditions.

Generali

inflation

mewbie wrote: »

I was hoping for something like fellation but I guess it's not to be.

Well the economy sucks and it's all going to end in a mess so there are parallels.

Kev09

inflation

dopester wrote: »

Yes. Ford and other car-manufacturers are raising their prices too.

Obviously that is increasing their sales figures.

Companies going to the wall, rising unemployment, pay-cuts, savings getting little interest, trillion of pounds in stock market wealth disappeared in to the vortex, house prices lost trillions of pounds in value... credit hard to get or not wanted by the credit worthy in retrenchment.

Yes... raise the prices all you want - and lets see your sales figures boom as your customers go in to a purchasing frenzy. :rolleyes:

I either won't buy at old-world prices, or wait till prices have to fall, or go to your competitor, or new business, who are willing to lower their prices to better match market conditions.

Dopester I really do not care what you buy! I sell to other businesses, not everyone is in retail so that dig about customers going into purchasing frenzy and the fact you personally are such a shrewd consumer is lost on me.

I have seen some products go up by 20-25%, now for instance if I am selling several pallets of a good my margin may actually be below that. I am not going to sell at a loss, I may not pass all the increase on but the prices are going up I and all my competitors have no choice as the products are imported, now there will become a time when it becomes cheaper to make the stuff here and this is happy days for our economy but there is not the capacity at the moment so people have to import! this situation is widespread throughout all sectors but as I said takes ages to filter through.

I do not dispute that there are some real heavy deflationary pressures on the economy, but the inflationary ones, once they kick in there will be no stoppping them!

Dithering_Dad

dopester wrote: »

Yes. Ford and other car-manufacturers are raising their prices too.

Obviously that is increasing their sales figures.

Companies going to the wall, rising unemployment, pay-cuts, savings getting little interest, trillion of pounds in stock market wealth disappeared in to the vortex, house prices lost trillions of pounds in value... credit hard to get or not wanted by the credit worthy in retrenchment.

Yes... raise the prices all you want - and lets see your sales figures boom as your customers go in to a purchasing frenzy. :rolleyes:

I either won't buy at old-world prices, or wait till prices have to fall, or go to your competitor, or new business, who are willing to lower their prices to better match market conditions.

Dopester, you're starting to become a little fanatical about deflation. This is the second time I've seen you get rather 'hot' and sarcastic when someone mentions inflation. I realise that you want to be proven right and that you've invested a lot of time in your deflation posts but you can't keep attacking people just because they raise the mention of 'inflation', Whether we think we'll have deflation or inflation will make no difference to the economy, it will carry on regardless, no matter how heated the discussions on here get. If you're right about deflation then time will show it.

I personally think we'll have a few months of RPI deflation due to the disproportional basis of housing costs in that particular index, but that we will see CPI start to creep up. Once the effects of historically low interest rates coupled with QE really takes hold, the RPI will start to creep north, despite low rates, and CPI will be pushing 7 or 8 percent. By the time the government takes its eye off RPI and decides that CPI is the measure of choice again, it will be too late.

Unless, of course the BoE develops a backbone and stands upto the government. I expect a lot of sabre rattling from the BoE about the CPI, to cover itself when things go tits up, but politically they won't have the will to stand up to Brown.

Really2

deflation

dopester wrote: »

Carolt you know I've been very annoying in repeatedly warning that we are heading for deflation for well over 1 year now. Now deflation fears are becoming more of a topic of discussion - on whether it is or whether it isn't. "How can it be; look at this look at that?".... when it is clear to me it is just the transition-phase into full-scale deflation.

Deflation, because, apart from essentials, including energy and food, I'm not buying any product or service from businesses which are jacking up their prices - where I need to look after my income/savings and can't afford to go out buying anything I want - a path so many people are increasingly being forced to follow.

Let their products sit on the shelves, or their services go unused, if they can't adjust to the new reality where there is less money in the economy, and their prices are reduced to levels which support demand whilst also allowing profit.

Some other business will come in to fill the void, and still make profit, at cheaper rates which reflect prevailing and future deflationary conditions.

We have an economy in which there is less credit about (either wanted by the credit-worthy / and refused to the non-creditworthy).

Where personal savings rates are low (and those with savings are mostly getting poor rates of return) - and existing debt loads are very high. Where both house prices crashing and stock market falls have wiped out £trillions in personal wealth values. Companies which could only survive in boom conditions going under, and others who expected the boom to last forever and took decisions to expand and take on more debt based on that now buckling. Rising unemployment and pay-cuts.

The deflationary pressures are more immense than you realise, and Governments have very limited powers to prevent it, else run the risk of wiping out everyone in the economy - which is an even worse outcome. The powers of leverage in play is creating losses in the system of a near unimaginable kind.

So which on did you vote for.;)

Really2

deflation

Kev09 wrote: »

I do not dispute that there are some real heavy deflationary pressures on the economy, but the inflationary ones, once they kick in there will be no stoppping them!

Once deflationary presure eases we should be coming out of recession. Stronger £ = cheaper imports etc.

To tell you the truth I really do not think we are going to see hyper or high anything.

Again every one will go on look at the past "it as happened before" apart form prices increasing based on human consumption what other reasons are there to get inflation? Is every man woman and child going to be given £40K or somthing?

If not paying down debt (including labours) looks like the likely senario, most advanced nation would not want high inflation to get debt wiped away because it is dangerous.

A year-ish of deflation and then slight inflation for a long time (except items supported by population lead consumption eg food)