Barclays warn of coming 'Inflation Storm'

WTF?_2

Brian_Bullocks wrote: »

Huh?? If deflation is a real danger, then all our problems are over :j

Asset price deflation, yes, as the enconomy contracts..but not goods deflation. Goods inflation has a long way to go.

It's the cause of the deflation that decides whethere the deflation is 'good' or not.

Deflation because of increased productivity making the goods cheaper = good. We've had this over the last decade from the effect of the Far East becoming a major manufacturing power.

Deflation because capital has been destroyed and the banks can't lend, hence there is literally less money around = bad.


Even if you have 'cash in the bank' in the latter scenario you will have to worry about whether or not the bank is going to go bust. There's a reason for the stereotype of older people (who can remember the spectre of this before) preferring to hide their cash in a shoebox under the bed.

WTF?_2

free4440273 wrote: »

Closed down hard at 140.68; hence Dow now green

Unfortunately, it closed down 106.91 points on the day. (almost another percent off).

The 12 month chart doesn't make pleasant reading:

free4440273

!!!!!!? wrote: »

Unfortunately, it closed down 106.91 points on the day. (almost another percent off).

The 12 month chart doesn't make pleasant reading:

I wasn't suggesting this was in any way long-term positive for the Dow; just pointing out Dow/Oil correlation over the last few weeks, that's all. Some are suggesting that Oil is due a fall soon: I don't share that view. The market has been pausing and moving sideways – but now looks to have broken out. Oil is going higher IMO

tradetime

Generali wrote: »

My belief is that the real danger is deflation.

As the amount of money the banks have to lend falls dramatically, money creation drops too. I think that is going to lead to asset and goods price deflation.

I'd agree that in the current position deflation is a very real risk cetainly the necessary pre-conditions are in place, much of the current inflation we are experiencing is speculative imo.

Generali

tradetime wrote: »

I'd agree that in the current position deflation is a very real risk cetainly the necessary pre-conditions are in place, much of the current inflation we are experiencing is speculative imo.

My belief is that what we are experiencing at the moment isn't inflation as such if you accept the definition of inflation as being a persistant and continual increase in the price level.

What I think we are seeing is either a one off repricing of oil and food combined with a speculative bubble that is pushing the prices of these things higher. This has pushed the price level higher but only as a one-off event. I think inflation isn't going to be able to set in as many workers don't have the power to force through pay rises due to globalisation.

Once the one-off increase in prices has worked its way through then I think there is a real danger of deflation taking off.

Brian_Bullocks wrote: »

Huh?? If deflation is a real danger, then all our problems are over :j



Asset price deflation, yes, as the enconomy contracts..but not goods deflation. Goods inflation has a long way to go.

I'm not sure why you think our problems would be over if deflation takes hold. Can you explain how you got to that conclusion? My understanding is that in an economy with a lot of debt, deflation really hurts as nominal incomes fall but the debt level stays the same.

neverdespairgirl

Generali wrote: »

My belief is that what we are experiencing at the moment isn't inflation as such if you accept the definition of inflation as being a persistant and continual increase in the price level.

What I think we are seeing is either a one off repricing of oil and food combined with a speculative bubble that is pushing the prices of these things higher.

I'm not sure I entirely agree.

I agree with you about oil and food.

But in a way, we've been living falsely for the past 10 years or so on "stuff" from China - whether that's clothes, toys, or electronics.

We get this stuff so cheaply because (1) poor people are prepared to work for much less than we are, (2) because of currency inbalance.

Neither of those things is likely to stay the same. Firstly, there might well be growing pressure on consumers who are happy to live the high life at the expense of people abroad being exploited. Secondly, as those countries get richer, there will be a decline in the number of people prepared to work in bad conditions for terrible wages.

Thirdly, wih globalisation, there has in effect been a big change in the labour market. From being relatively consistant on the supply side, the effect of increased trade and lower trade barriers has been a huge increase in the supply of labour, greater than the demand. That can't last for ever, as the economy adjusts over time.

tradetime

neverdespairgirl wrote: »

I'm not sure I entirely agree.

I agree with you about oil and food.

But in a way, we've been living falsely for the past 10 years or so on "stuff" from China - whether that's clothes, toys, or electronics.

We get this stuff so cheaply because (1) poor people are prepared to work for much less than we are, (2) because of currency inbalance.

Neither of those things is likely to stay the same. Firstly, there might well be growing pressure on consumers who are happy to live the high life at the expense of people abroad being exploited. Secondly, as those countries get richer, there will be a decline in the number of people prepared to work in bad conditions for terrible wages.

Thirdly, wih globalisation, there has in effect been a big change in the labour market. From being relatively consistant on the supply side, the effect of increased trade and lower trade barriers has been a huge increase in the supply of labour, greater than the demand. That can't last for ever, as the economy adjusts over time.

Whilst I am not necessarily convinced that we are about experience major deflation, I do as I said in my previous post acknowledge it as a significant risk, given the presence of the necessary pre-conditions.
I don't however see why the above would have much impact since my understanding of deflation is that it's roots lie primarily in the monetary / credit arena.

Generali wrote:

I'm not sure why you think our problems would be over if deflation takes hold. Can you explain how you got to that conclusion? My understanding is that in an economy with a lot of debt, deflation really hurts as nominal incomes fall but the debt level stays the same.

That is correct, debt remains the same but the ability to service that debt deteriorates, the condition to some degree benefits those with cash as the purchasing power of that cash increases.

Generali

tradetime wrote: »

Whilst I am not necessarily convinced that we are about experience major deflation, I do as I said in my previous post acknowledge it as a significant risk, given the presence of the necessary pre-conditions.
I don't however see why the above would have much impact since my understanding of deflation is that it's roots lie primarily in the monetary / credit arena.

My understanding is that deflation can have two causes:

- 'Good deflation' which comes from rapid improvements in productivity. We had this in the UK in the 1870s I think.
- 'Bad deflation' which comes from the money supply shrinking. This is what I think is going to happen as a result of the dramatic fall in lending.

tradetime

Generali wrote: »

My understanding is that deflation can have two causes:

- 'Good deflation' which comes from rapid improvements in productivity. We had this in the UK in the 1870s I think.
- 'Bad deflation' which comes from the money supply shrinking. This is what I think is going to happen as a result of the dramatic fall in lending.

Whilst I understand the perception that a fall in the price of anything could be viewed as deflation I tend to use the following definition.
Deflation = a contraction in the volume of money and credit relative to available goods.
It becomes a problem when it developes into a defaltionary spiral.

A quick read around suggests the the first scenario may more suitably be called disinflation, odd I know, but then I've only really started sudying more closely into defaltion since you brought it up on another thread, it tends not to be a threat that features a lot in most peoples thinking.

Generali

tradetime wrote: »

Whilst I understand the perception that a fall in the price of anything could be viewed as deflation I tend to use the following definition.
Deflation = a contraction in the volume of money and credit relative to available goods.

It's as good a definition as any I suppose.

As I don't believe that all changes in the price level have a monetary cause (although most do) mine would be something like, a persistant and continuing fall in the price level.