When does (serious) inflation kick in?



Roubini on stagdeflation:
rgemonitor.com/roubini-monit … _deflation
(Courtesy of tickerforum)


thanks for the read

I thought this was interesting:

especially saying this:

Did the US not damage their credibility about inflation last year?

also, I never heard of Volcker before so I checked wikipedia and saw this:

Would he be inclined to provide the same advice as he did during the early 80s?


Hi provost - the US will only be seen to have damaged its reputation on inflation in hindsight - if we do experience deflation, Bernanke will be hailed as a god of prescience and Trichet will be lambasted as a fool.


Excellent article (click on link for graphs etc):

financialsense.com/editorial … /1024.html

EDIT: Too long, better to go to the link.


Thought it was poor myself. I’m an armchair economist and I can poke several holes in it.

  1. He refers to the massive $0.5tr expansion of the Fed balance sheet - without acknowledging the ~$0.5tr writedowns the US banks have suffered. This scenario is not inflationary, it is neutral at best.

  2. He scoffs at the concept of “people won’t borrow, banks won’t lend”. What the heck else happens in a housing bust (mortgage borrowing collapses) and a credit crunch (banks stop lending). This is here and now folks, it cannot be ignored.

  3. Oil has performed miserably this last couple of months, down 50%. When it peaked at $147 a barrel, the trading was several times the actual delivery of oil (can’t remember the exact figure) so it was classic speculation - oils equivalent to flipping!

  4. Gold just hasn’t done the business, has it?

  5. The dismissal of long bonds. They’re trading at ~3.5% I think, hardly indicative of massive inflation down the line.

To be honest I thought the article was clutching at straws to justify the authors hypothesis.

This statement said it all for me, it’s wishful thinking at best. The author has said nothing to back up his assertion that the correction is not a secular trend. This is religious belief talking imho.


China is interesting - growth is still 9% but inflation is over 7% and the strength of RMB has affected exports from China.
China has reportedly over two trillion in USD reserves and I can’t see it standing by and watching value of those wiped out. Likewise the sovereign wealth funds in Mid East.


Yeah, Tyler, I agree with you. The pressure for deflation is strong.

And any time you hear anyone say that China is still growing at 9% so it is decoupled, remember:

  1. 7% inflation
  2. Closed state figures - aside from the size and chaotic nature of parts of the economy, there is a bias towards progress figures (mind you, the same thing is true in US figures recently!).


What they’re gonna do? Buy more $$ to support the value of their reserves?


From FTAlphaville: Quantative Easing

Also, checkout Bernanke May Seek New Ways to Ease Credit as Fed Rate Nears 1%
bloomberg.com/apps/news?pid= … refer=home


This is incorrect. One way of looking at it is the banks created money from nothing. Now the FED are replacing these notional “assets” with real assets. It’s not like for like. That’s important to understand. The monetary base is increasing, I’m sure you’ve seen these charts posted on the forum before.

He isn’t scoffing, he’s pointing out that the FED will try to “stimulate” lending again as lender of last resort. They’re doing this in order to avoid deflation.

What is speculation?

I’m no goldbug, but I believe it has held price levels better than many other asset classes.

It’s a flight to safety/quality/liquidity, inflation is not currently a consideration during the present turmoil. But it will become again.

Personally, I’m still trying to decide my view on inflation/deflation/stagflation/biflation or now, stag-deflation and I certainly thinkn this article helps.


**US faces deflation to compound its misery


marketwatch.com/News/Story/b … aspx?guid={AC36BD4E-6445-4529-B044-70780F57BA5C}
Bond market bets on deflation for several years


GDP is net of inflation, no? But I agree the figures are untrustworthy.


I’ve been bashing my head as well regarding the deflation/inflation debate, but I’m putting my money now on serious inflation. Countries which default on their debts just don’t experience strong currencies. Think Iceland. Think Argentina. I know you all scoff, but I believe Iceland will be the first in long line of soverign bankrupcies.

Do you know who I think is the most in danger regarding major countries: the UK. Balance of payments deficit that is and will be shooting through the roof as the tax base shivels dramatically. It’ll create gilts from nothing and spend like no tomorrow (as there may not be) to counter the private debt destruction going on. That will make gilts as about as valuable as toilet paper (ok, slight exaggeration). Capital will rush away. Import prices will go to the moon. Stagflation at best come inflationary depression. Iceland anyone?

Here’s a nice little analysis:


A long time ago on itulip, it was argued that the US could not experience hyperinflation because it was a reserve currency.
At the time, my first thought was, what about the UK?


It’s easy to treat this inflation/deflation discussion as a wordwide issue - as in oil prices rise for everyone etc.

But the reality, at least for those who distinguish between price and monetary inflation, is that you can have very different scenarios for the dollar, the euro, the pound and every other distinct currency unit. This is why I cautioned earlier in this thread against applying iTulip hypoetheses against the Eurozone as they’re very dollar-centric theories.

Personally, I see deflation for the US, a milder deflation in the Eurozone affecting Ireland disproportionately though, and I think the UK might just go Icelandic. Heck, we’re already seeing the seeds of a possible Icelandic episode with the collapse in Sterling.


Not scoffing here


Not scoffing here either. As conor_mc says, the globalised system is going to fragment with inflation in some places and deflation in others. As you say, any country that defaults on its sovereign debt is more than likely going to go Iceland (with, as you say, inflation). While I don’t believe this is impossible for the larger currencies, I think you have to look at things like who is on the other side of the Iceland defaults - that’s right, the euro. So the losses being experiences in the eurozone more than cover any money pumped in. Despite everything they try, deflation will be the result - we are closer to Tokyo than Rekjavik.





Here’s my understanding. Inflation is the increase in supply of money in the system whereby the monetary value of an asset gets diluted over time. This is supposed to occur when money is pumped into the system by central banks etc.
Even though money is now being pumped into the banks will that trickle down to companies and consumers? Consumers will not load up on debt (even cheap debt) if the banks enforce stricter criteria and consumers themselves have lost money (cash/paper/neg.equity), credit standing and also have a weaker ability to pay back due to economic conditions. Also many consumers will be unwilling to take on large amounts of debt, in consumers case usually associated with housing. Since housing remains overpriced in Ireland compared to income I don’t see many consumers jumping on that old bandwagon. Similarly companies will not easily access credit even at low interest rates and in fact they do not need so much credit as their investments are delayed worldwide. Significant wage increases are pretty much ruled out in the current climate and taxes will probably increase further eroding purchasing power.
There is no increased demand from any sector (manufacturing sector worldwide has expanded hugely in last 10 years) I can look at so how can there be demand/supply imbalance leading to higher prices and thus inflation?
All the factors point to serious deflation AKA Japanese for a few years (didn’t the Japanese have almost 0% interest rates and it did nothing for them…in one of the world’s most dyamic export economies).