Deflation Watch pt 153 - International Edition

Generali

ninky wrote: »

however deflation whether international or not always needs to have roots in some domestic (overseas or otherwise) influence somewhere along the line. if the argument is that goods become cheaper from overseas you still need to explain the mechanism by which that happens. everything suggests that demand for raw materials is growing and supply is dwindling.

Raw materials aren't the beginning and the end of prices, in fact for the price of many things these days they are a small part of the final price even of goods rather than services. Examples are software and pharmaceuticals.

Anyway, with deflation, goods don't become cheaper as such. It's more that money becomes worth more.

Inflation (and deflation) are caused by the amount of money people want to spend and the quantity of goods people want to buy. If people want to spend less en masse, sellers will have to cut prices. Falling prices, ultimately, is deflation.

Look at Japan. People feared they would lose their jobs so they spent less and saved more. That meant companies didn't sell as much so they sacked people and cuts prices. That made people fear they would lose their jobs so they saved more.....and so it went on for 20 years and counting.

I believe you are a fan of deficit spending (please correct me if I am wrong). Japan's debt is now well in excess of 200% of GDP excluding off balance sheet stuff like pensions, still the deflation and the stagnation continue.

ninky_2

Generali wrote: »

I believe you are a fan of deficit spending (please correct me if I am wrong). Japan's debt is now well in excess of 200% of GDP excluding off balance sheet stuff like pensions, still the deflation and the stagnation continue.

and equatorial guinea's deficit is virtually zero....yet most people live below the poverty line. whilst the majority of the japanese population have quite comfortable lives.

it's not necessarily a bad thing for a country to run a deficit. the thing most people care about is their quality of life on the ground.

tomterm8

Generali wrote: »

I believe you are a fan of deficit spending (please correct me if I am wrong). Japan's debt is now well in excess of 200% of GDP excluding off balance sheet stuff like pensions, still the deflation and the stagnation continue.

I think that deficits, like hyperinflation and deflation, are symptoms of wider problems. Hyperinflation and deflation are symptoms that the government has lost control of monetary policy. I think deficits are complex... the deficits before Lehman brothers, I think, were symptoms that the government was being idiotic, and spending too much. I think after Lehman, the banking system had broken down, and I'm not convinced its been fixed... basically, the deficits have been like blood donations... you're pooring blood into the economy, which has a gaping wound, and the blood is leaking away almost as quick as you poor it in.

Shut of the blood, and if the medical treatment worked, things will be painful, but the patient will recover. If it didn't work, then the deficit is a symptom of a major problem, and the patient may go into cardiac arrest.

Generali

ninky wrote: »

and equatorial guinea's deficit is virtually zero....yet most people live below the poverty line. whilst the majority of the japanese population have quite comfortable lives.

Equatorial Guinea has a GDP/head of USD37,500. The reason the majority live below the poverty line is that members of the Government syphon off most of that money. It is a rich country with poor people living in it.

Quite what any of that has to do with deflation or deficit spending in normal countries rather than basketcase kleptocracies I don't know. .

sabretoothtigger

the deficits before Lehman brothers, I think, were symptoms that the government was being idiotic

Yea Im pretty sure keynes said to run a surplus in the good times. That would make more sense. We increased our debts both in good and bad.
Clinton is the only president in 30 years to run a surplus, not sure about here but we never cleared the table of debts

The main reason government likes to run a deficit is large amounts of spending empower their position.

Who wants to be in charge of a small budget carefully spent with hard unpopular decisions. I want to be the guy handing out cigars and whiskey personally and saying you deserve it, it'll do you good.
In ten years when you got a bad liver and no money I'll be giving an after dinner speech to the guys who can pay my fee still


Obama is a great speech reader, I dont know if he writes them but sounds good anyway. But I'll be more impressed when he can inspire hope and determination without borrowing and spending 150bn of his peoples money.
From what Ive seen of life it takes a real hero to do the unpopular and unthanked tasks in life and he isnt one of those guys and does not inspire hope in me

ninky_2

Generali wrote: »

Equatorial Guinea has a GDP/head of USD37,500. The reason the majority live below the poverty line is that members of the Government syphon off most of that money. It is a rich country with poor people living in it.

Quite what any of that has to do with deflation or deficit spending in normal countries rather than basketcase kleptocracies I don't know. .

members of the ruling elite / rich. not necessarily government. i think there are strong parallels to any country where there is a (growing) gap between the richest and the poorest. it shows that a country's wealth does not necessarily correlate to the typical life of the majority of the population and that there are no general advantages of generating wealth (or indeed a strong economy) unless there are means to ensure that wealth filters through to benefit everyone.

we're told we're in it together but who is actually going to reap the benefits of all the heartache and suffering? under this current government it's the wealthy.

we are told we have to pay back the deficit but deficits and national debt are not like personal debt where clearly you have a limited number of years to pay back your loan and it actually benefits you to pay it down more quickly.

Generali

ninky wrote: »

members of the ruling elite / rich. not necessarily government. i think there are strong parallels to any country where there is a (growing) gap between the richest and the poorest. it shows that a country's wealth does not necessarily correlate to the typical life of the majority of the population and that there are no general advantages of generating wealth (or indeed a strong economy) unless there are means to ensure that wealth filters through to benefit everyone.

we're told we're in it together but who is actually going to reap the benefits of all the heartache and suffering? under this current government it's the wealthy.

we are told we have to pay back the deficit but deficits and national debt are not like personal debt where clearly you have a limited number of years to pay back your loan and it actually benefits you to pay it down more quickly.

How are members of the 'ruling elite' not the Government? This is rubbish.

What has it got to do with deflation?

JP45

sabretoothtigger wrote: »

Most cars are imported and have risen in price from what Ive heard. So we dont have excess supply, our currency exchange rate is lower to buy foreign goods and the ownership of cars elsewhere in the world is rising. Theres no deflation. Same for plasmas, they are made in the far east

They may have risen a bit over the past couple of years as a result of the fall in the value of sterling but the long term trend has certainly been deflationary.

Earlier this year I bought a car which is equivalent or better in every respect yet cost less than the ten year old car it replaced. Two days ago I bought a vastly superior HD TV for half the price of the TV I bought 10 years ago.

Now compare that to the price of items for which demand is relatively inelastic, such as food and fuel. In these cases, prices have almost certainly risen over the past ten years and have every prospect of continuing to rise IMO.

In short, I think vivatifosi is absolutely right. I believe we will continue to see significant price rises in essentials, fueled by the continuing growth in global demand, whilst prices of so called discretionary items will be kept in check.

Generali

JP45 wrote: »

They may have risen a bit over the past couple of years as a result of the fall in the value of sterling but the long term trend has certainly been deflationary.

Earlier this year I bought a car which is equivalent or better in every respect yet cost less than the ten year old car it replaced. Two days ago I bought a vastly superior HD TV for half the price of the TV I bought 10 years ago.

Now compare that to the price of items for which demand is relatively inelastic, such as food and fuel. In these cases, prices have almost certainly risen over the past ten years and have every prospect of continuing to rise IMO.

In short, I think vivatifosi is absolutely right. I believe we will continue to see significant price rises in essentials, fueled by the continuing growth in global demand, whilst prices of so called discretionary items will be kept in check.

If this is what happens, and IMO it is perfectly possible, it implies a pretty rosy future for the middle classes of the world (which includes pretty much every person living in the UK) and a pretty grizzly one for the world's poor. The average person in the UK spends 9% of their income on food for example and gets a pretty varied diet with plenty of prepared food for their money.

I would imagine that for most of the world's population, paying someone else to wash their potatoes or chop their lettuce would be a stupid indulgence, in Tesco on Oxford Street I have seen them throw dry soil over washed Jersey Royals to give them the authentic, 'just out of the ground' look!

gagahouse

JP45 wrote: »

They may have risen a bit over the past couple of years as a result of the fall in the value of sterling but the long term trend has certainly been deflationary.

Earlier this year I bought a car which is equivalent or better in every respect yet cost less than the ten year old car it replaced. Two days ago I bought a vastly superior HD TV for half the price of the TV I bought 10 years ago.

Now compare that to the price of items for which demand is relatively inelastic, such as food and fuel. In these cases, prices have almost certainly risen over the past ten years and have every prospect of continuing to rise IMO.

In short, I think vivatifosi is absolutely right. I believe we will continue to see significant price rises in essentials, fueled by the continuing growth in global demand, whilst prices of so called discretionary items will be kept in check.

Agree, some call it biflation, others call it stagflation. The only bit I would question is "fueled by continuing growth in global demand" - this is true for some parts of the world but I would point the finger more at the massive govt money printing going on around the world.

We don't live in a perfect controllable system where for every 1 pound destroyed through de-leveraging the govts can match it with 1 pound of printed money - the distribution is much more asymmetric and so we see the leakage of this printed money into certain sectors (commodities) and drainage from others (e.g discretionary items which need credit to fund).

I've no idea which force will ultimately win, I do understand though that no govt wants deflation after a 20x leveraged credit bubble burst in the financial system and will pull out all the stops to prevent it, even if it means destroying the purchasing power of your money.