Generational Dynamics Forum - New Site

Personaly, I think that this comment is interesting:

ainsleyclare wrote:What I see happening is that some things are getting less expensive (ie, furniture, vacation travel, fancy electronics, anything else we can do without) while other things are getting more expensive (ie, food, utilities, anything else we really have to have).

Note that I don't say I "foresee" this happening. It is happening right now!
....

That is interesting in whole discussion Inflation/Deflation...

At the beginning - it is important to notice some present facts:
1. Real credit contraction or debt Deflation in the most West countries influenced more or less by US.
2. Enormous deficit and public debt of USA which still - rising! (+41%)
http://www.marketwatch.com/news/story/b ... siteid=rss
3. Collapsing of tax revenues in the USA! (-28%)
http://www.usatoday.com/news/washington ... es12_N.htm
http://californiascapitol.com/blog/?p=335
4. Strong inflation in the China - which becoming even stronger!
http://www.forbes.com/feeds/reuters/200 ... RGENT.html
http://www.bloomberg.com/apps/news?pid= ... refer=asia
http://www.bloomberg.com/apps/news?pid= ... =exclusive
5. After Treasury secretarys Timothy Geithner repeated wows that China is "a currency manipulator" and statements that Yuan is "undervalued" - some action from China were coming:
http://www.chinadaily.com.cn/bizchina/2 ... 660085.htm
http://www.chinadaily.com.cn/china/2009 ... 610529.htm


After consideration of those couple points, I think personally, that there is very few reason to expect a global monetary deflation. (Market corrections, debt destruction, defaults... yes, but NO monetary deflation!)


So the comment from ainsleyclare is interesting because it shows - the reality.
I.e. Chinese do NOT need Americans real estate. (besides that they are extremely overvalued, those are unbelievable - bad quality buildings! At least if we compare with German, Austrian, or even Scandinavian quality of real estate!)

BUT, Chinese (or other investors) could be interested in food, energy, or "anything else we really have to have" and what is NOT "connected" strictly with USA soil or financial system.

Finally, we can try to imagine a VERY severe Deflation in USA, as just ONE part of the "Global World".
It automatically means that, for example, price of wheat is falling too! .... (as John saying -"the price of everything is falling")
It can perhaps be so in USA.
BUT in China, which has huge inflation now, enormous USD reserves AND according to US authorities an undervalued currency which - DEFINITELY will become MUCH stronger very soon:
- it is also easy imagine that China will buy US wheat (for example) direct on the US market.

Of course it would NOT be so nice for US citizens, BUT we are in the "free market" - are we?
With this buy - the price of wheat will if NOT increase - that definitely stay still even in "Deflationary USA"l!

And this pattern can be used for "anything else we really have to have".


So generally conclusion:
Even with sever "Deflationary spiral" in the US - it looks that prices of "anything else we really have to have" (AND for it need not to live in US!) - will at least stay still!
(As ainsleyclare mentioned - it looks sooner that these prices - WILL increase!)
How to call this phenomena?

eugenis wrote:I don't understand why after US Government printed a lot of money to bailout, the Gold price dropped? If a lot of money is printed, money value will drop and gold price will raise, isn't it?

Here is one more interesting article about real gold and "paper gold" created by central bankers...

http://www.telegraph.co.uk/finance/news ... -1500.html

It is not unreasonable to expect VERY soon collapse in "paper gold" (""leasing" machinery).
Than, of course situation will be totally different, but also - more clear... (i.e. with no necessity to talk about "the price of everything is falling")

Good news for German "johns" (not to be confused with me):

With the worldwide recession even affecting the prostitution
industry, many prostitutes are offering their own stimulus packages
in the form of special offers and promotions.

http://uk.reuters.com/news/video?videoId=102166

Ok, there's a lesson for me, don't type 2500 words into a web browser without saving them elsewhere first. Sigh.

Ok, I’m going for a redo!
A lot of people, here and elsewhere, get confused over the meaning of inflation and deflation. The government uses a “market basket” approach to measure inflation, a rubber ruler at best.
The true definition of deflation is a contraction in the money supply. Inflation is an expansion in the money supply. While either can affect prices in a broad way, neither is directly connected to the price of any single item.
For example, suppose some company develops nano assembler technology that allows for the building of anything, an atom at a time, in a matter of a few seconds. Dump scrap iron, a few trace elements and some old tires into the hopper, out comes a new car. Put in a batch of silicon, aluminum, old plastic and some odds and ends of glass and a tiny bit of gold and some copper, out comes a new computer. Or a new nano assembler device comes out the far end, and production doubles.
Of course, the production cost of all consumer goods falls to the cost of raw material (plus electric cost of running a nano assembler) at once. Food prices would go crazy, as bakers closed shop due to hot loaves of perfect bread being produced by the nanos. Cattle would roam wild, as nobody could pay for the slaughtering and transportation costs and compete with the cost of simply building a steak or a gallon of milk.
Prices would fall to as close to zero as can be imagined, there would be immense economic chaos, but there would be not one bit of deflation in the real sense of a change in the money supply. (One would expect the money supply to undergo enormous INFLATION, as soon as people caught on to the idea of mass producing perfect 100 dollar bills – in fact, money would be replaced by something else, but this would be the final end of every existing economic system based on production and consumption – IOW, all of them.)
Production improvements and discovery of new resources have a much larger impact on prices than rises and falls in the money supply, certainly over the short term and very often over the long term as well.
For a real world example, silver to gold price ratios were reasonably stable for centuries at about 12 to 1 (yes, some say 15, some say 10, some only point to peaks at 5, but 12 to 1 is about average) and it held in that range for a very long time indeed. With the discovery of the Comstock Lode, that ratio changed, and now it holds at an average of about 45 to 1 – at this moment I do believe it’s about 62 to 1, though that might change at any time (and does point to either silver being undervalued, which I doubt, or gold being in a bubble, which seems very likely, IMHO). This had to do with a growth (or inflation, if you will) in the physical supply of silver itself, nothing else. And it is bloody well worth noting here that I’ve read a great many rah rah buy silver lectures on the Internet, and I honestly cannot recall a single one that mentioned the Comstock Lode. Certainly there were very few that mentioned it.
Gold coin as money does not prevent inflation, as the history of the Roman Empire (and a great many others) plainly show, the Romans inflated their money by debasing the gold content of the coinage, and the later coins from the Empire assay out very poorly. One would do well to remember the jeweler’s secret, mixing gold with any metal with a lower density will give a much larger volume of gold of the given carat number than would be expected from the relative weights. A 50% (12 carat) by weight mixture of gold with another metal may very well result in a much lower ratio by volume.
There isn’t much reason to demand a constant money supply either, unless you have both constant production and constant population, though that’s another subject.
The reason for the above is simply this, I dislike arguing definitions and historical facts and the above are the definitions and starting points I use in economic discussions. Talking to people who aren’t using the same definitions is unprofitable, and at least if they disagree, we know where we disagree.
With all that as a starting point, given that we live in a credit based economy, credit is money. This would have no effect, save for the fact that bankers can issue more credit than they have in capital. Therefore, banks can create money in the form of credit. Many point to the fact that debits and credits have to balance to naysay this, but in fact I can spend credits and buy anything I wish. Until both checks and credit cards are refused at the stores, it’s just a fact, credit is money.
When bankers created a great deal of unsound credit over the last few years, they created a lot of money on a very bad basis. In effect, they watered down the currency, inflating it hugely. This inflation, of course, was reflected in the increase in prices in the rest of the economy, though it was very interesting to see that the Fed moved to force most of this inflation into the stock market. As long as the debt bubble held up, this inflation could continue, and it put trillions into the pockets of the people who were driving it.
Now it’s over. As these debts are written off, that money disappears from the money supply and the money supply shrinks, thus, we are in a deflationary period. The Fed is drastically intervening to limit (not stop) deflation by pouring money into the banks to slow or prevent the write offs/mark downs. (Nobody seems to be pointing out that the Fed is supposed to REQUIRE the mark to market, by law, and to punish those who don’t, but again, another subject. Well, nobody besides John. )
Since neither the Fed nor the US government has the money to prevent the write offs, we are in for a very protracted period of slow deflation, which will accelerate in two years when the government is forced to stop propping up the banks for a half dozen very good reasons, though number one will be the upcoming elections.
So I agree with John about being in a deflationary period, though I do temper this with the statement that we may or may not see certain consumer prices decline during the period. Deflation doesn’t mean every price falls or falls equally.
As for gold, gold appears to me to be in a bubble. I was in Kuwait City recently, and the Kuwaii papers were up in arms about the price of gold going to 7.5KD per gram. Silver was getting premium space at the Marina Mall, and the Kuwaii seem to be sitting on their hands as far as buying gold at that price. Many are reporting the same all across the Mid – Far East, the traditional buyers of physical gold have just stopped. If what I saw in KC in February is typical, that’s exactly what is going on.

I posted about the inflation vs deflation debate on a thread about the Generation Zero movie, but it seems that discussion should really be here. I have also been writing up my own document on this economic mess and it has a section on inflation vs deflation. I would appreciate any feedback on either what I posted on the other thread or what is in my document. Thanks. Vince.

http://generationaldynamics.com/forum/v ... 6&start=20

http://pair.offshore.ai/38yearcycle/#deflation

Relative values of currencies are interesting, and some use that as an inflation measure. If that's the case, then the EURO has inflated like mad over the last few months, or the dollar has deflated, or both.

I've written on this subject probably well over 100 times, including
many times in the Financial Topics thread, and I really have no idea
what I could add that I haven't said before.

If this discussion is going to be pursued again, I would only add a
word of caution: There are two completely different meanings of
inflation/deflation, measured in completely different ways:

• Internal inflation is measured by a "price index" (such as the
  "consumer price index" or the "producer price index");
• External inflation is measured by the relative value of the
  currency versus other currencies on the forex exchanges.

In the long run, these two measures must converge, but they can and do
diverge in the short run. During the past week, the euro was
deflationary within Europe but inflationary outside of Europe, by
these measures, and that's what I would have expected.

John

John wrote: First, let's repeat what I've said many times before: For decades gold has remained in the range of $300-400 per ounce, except for the 1980 bubble, and the current bubble.

The "real" value of gold is therefore $300-400 per ounce, whether you like it or not. If you want to throw in something for inflation, then maybe it's $500 per ounce, so let's say $500.
John

For around 150 years the value of gold was $20 per ounce but then they started printing money. The price has not reverted toward the mean of $20 nor will it ever since there is far more money now. And it will not revert toward that more recent mean of $300/oz again either. As for throwing in something for inflation, you are far too low. Total money in 1930 was order of $30 billion, now there is order of 1000 times as much. So an estimate of more like $20,000 per ounce makes more sense than $300/oz.

As others have said, after you have clearly understood so much about history and the future, it would be sad for you to lose your wealth to worthless paper money because you missed on this one key point.

-- Vince

John wrote: This argument is a failure. The dollar CAN NOT crash, because we're in a deflationary spiral. The dollar ISN'T crashing. It's revaluing upward. That is what is expected in a deflationary spiral.

Therefore, those of you who are investing in gold have to face the fact that your principal assumption is failing.

Like others have said, all the stuff I am buying is going up in price, not down. You were predicting a 30% drop in the CPI by 2010 and it has not happened. When will you face the fact that your principal assumption is failing?

If Obama sent out checks for $50,000 to each person in the US (legal or not), you agree we could get inflation, right? You understand that most money is not even in paper form these days but seem to think there is some limit on the amount they can create. But they can always add zeros, so why do you think there is any limit? Even the number of trees does not put any kind of limit on how many trillions they can make because they could have $100 trillion notes if they wanted to. The government gets to print and spend money while saying they are fighting deflation and you think they will not be able to print and spend enough to overpower any deflationary forces? Why?

-- Vince

silver2008 wrote: How is money destroyed?
I default on my 1000 loan. The bank loses 1000 dollars.The money supply shrinks by 1000 dollars and money disappears out of thin air.

Lets flesh this out a bit. You have 10% downpayment for a house. The bank gets the other 90% from the Fed and pays for the house. You can not make the payments, leave the house, and someone burns down the house while it was not insured. You think the money supply goes down? The guy that sold the house still has the money and now the Fed is never getting their money back so the money supply will stay inflated. Not paying back loans to banks who get their money from the Fed is inflation not deflation.

http://pair.offshore.ai/38yearcycle/#deflation

-- Vince