Deflation Watch pt 153 - International Edition

Bullfighter

Generali wrote: »

There are 2 types of deflation, the sort that tomterm8 alludes to which results from stuff getting made more efficiently and thus cheaper (aka 'good deflation') and the sort that you allude to ('bad deflation' or 'debt deflation' or 'the thrift paradox').

I think hyperinflation is unlikely for 2 reasons. Firstly it is uncommon. Secondly I think people get a bit carried away when talking about hyperinflation. Hyperinflation isn't inflation of 10% or 20% or even 30% a year. It's inflation running at such a rate that prices are changing on a daily or weekly basis, thus making any sort of economic planning impossible. Effectively money becomes all but worthless.

Andy Flower described hyperinflation very nicely on a cricket commentary over here a while back. He bought a T Shirt for ZWD4,000,000,000. He really loved the T-Shirt and it became a favourite and, as many men do, he wore it until it was a sorry state.

He wore it again in Zimbabwe in this sorry state and was offered ZWD10,000,000,000 for it!

(I can't remember the actual numbers he used so made some up. They are in the right area I think)

As a follow on, the more I think about it the more I feel that we aren't indeed heading for inflation.. but actual hyperinflation.

Inflation is driven by demand and credit. (we can discuss price vs monetary inflation later). I agree that we aren't going to see this in the near future.. hence we currently have deflation.

Hyperinflation (as you define it) indicates a complete loss of faith in the currency by both the domestic population and external creditors. This is what happened in Argentina, Zimbabwe and post WWI Germany.

I'm still erring towards a continuing deflationary trend and then, due to monetary policies to trying to avoid deflation at all costs will result in cascading monetary collapse...

sabretoothtigger

naaah

the inflation in zim was like a trillion percent or something silly. They printed money to pay bills, pensions. We really arent close, 10% will be bad enough. We are better then most countries for our debt profile apparently so the whole cascade/rush for the exits isnt there so much




http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/09/uk_economy_some_good_news.html

Bullfighter

sabretoothtigger wrote: »

naaah

the inflation in zim was like a trillion percent or something silly. They printed money to pay bills, pensions. We really arent close, 10% will be bad enough. We are better then most countries for our debt profile apparently so the whole cascade/rush for the exits isnt there so much




http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/09/uk_economy_some_good_news.html

But that's my point. Inflation does not lead to hyperinflation. They are descriptions of two different situations. An economy could experience decades of deflation, followed by Hyperinflation without a smooth ramp up through inflation. Hyperinflation is the complete loss of confidence in a currency. A massive surge in commodity buying might be the trigger.

stelaconcepts

Deflation or inflation that is the question?

The only thing that is certain is instability of fiat currencies.

sabretoothtigger

Can the question be rephrased to something more straightforward, too much supply or not enough supply.
Japan has too much supply, they import water and oil but mostly on average they produce more then they use.
The country saves its money constantly, the very idea of higher sales tax is seen as dangerous and reason to off the pm

We dont have too much supply, we import oil and everything else to some extent. We spend our money constantly and borrow japanese money to spend more, so we're low on supplies

USA imports most things also even oil and gas which it has alot of. They also spend their own earnings and borrow from japan and spend (not invest?) that money too. They are low on supply but also have the largest market on their doorstep, the supply is on short term (4.7 years) credit so they are not overburdened with goods either

Too many houses seems a temporary and minor condition compared to overall and not even true especially when the usa population is growing and houses there are built from wood


Demand would be the other side and I dont see that falling long term either with growing populations (again Japan is the opposite)

ninky_2

sabretoothtigger wrote: »

We dont have too much supply, we import oil and everything else to some extent. We spend our money constantly and borrow japanese money to spend more, so we're low on supplies

i wonder if in the long term any country can sustain an economy greater than its natural resources. the uk is pretty low on these. maybe that's why we try to export our culture and pride ourselves on having great arts and music....we become gypsy kings of the planet literally singing for our supper. maybe simon cowell can save the uk after all. on the other hand this government is massively slashing funding for the arts.

sabretoothtigger

People are a countrys greatest resource in theory, gold nuggets are a bit more immediate though. We're lucky so many people speak english we can sell that music, its a major export I think






http://www.zerohedge.com/article/dylan-grice-what-weimar-republic-popular-delusions-can-teach-us-about-japans-upcoming-hyperi

The Japanese government pays an average of 1% on its debt yet spends 43% of its annual budget on paying that interest
The yen is stronger and 'richer' then sterling so I think we will not be immune to anything happening there


http://www.businessinsider.com/japans-pro-stimulus-challenger-loses-2010-9

ninky_2

sabretoothtigger wrote: »

People are a countrys greatest resource in theory, gold nuggets are a bit more immediate though. We're lucky so many people speak english we can sell that music, its a major export I think

we've all grown up with the notion that the uk is a great cultural exporter - but lost sight of where that came from. so we tend to think of it as some inherent attribute of the uk population rather than seeing that the conditions that allowed that to happen can easily change. colonisation / wealth of english speaking nations enables a ready market. arts funding allows greater social mobility and creation of some of our greatest cultural exports.

the market is changing. and we'd be wise not to sit on our laurels. if your greatest natural resource is your population you need to invest in that and protect it. i'd actually disagree that is is a country's biggest strength.

Generali

ninky wrote: »

arts funding allows greater social mobility and creation of some of our greatest cultural exports.

You reckon? I thought most of the UK's cultural exports were pop music and advertising, both thriving examples of culture created within a free market.

vivatifosi

Having read through this I think we're seeing inflation where demand is inelastic and the start of deflation where demand is elastic. The problem with this scenario is that it makes people feel poorer than the statistics suggest because it is the things we have to buy that cost more.

Looking at the items we buy where demand is inelastic (ie we have to buy them): food, transportation, fuel for our homes etc; the first issue is price shocks. Wheat prices have gone up exponentially due to poor harvests, there have also been poor harvests for pears, cotton, corn and other grains. Wheat prices will make the news more because we consume more wheat than corn or pears. However when harvests return to normal, price levels will return to more normal levels, just as they have in the past with cocoa and coffee shocks.

In terms of fuel, oil and gas are in effect price-regulated by cartels that will reduce production if demand falls, keeping price steady and on the high side, then increasing at rates above inflation when demand returns. There are also indications that public transportation costs will rise if government subsidies are cut and this year also saw above inflation increases in train fares.

Where spend is totally discretionary - cars, plasmas, gadgets, toys, furniture and so forth - implementing a price increase for the products you sell is much harder and it is here that deflationary pressures will be greater.