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Originally Posted by GratefulCitizen
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With high unemployment, a stalled economy, increasing exports by China (with the renminbi fixed) and the spectre of future tax increases, shouldn't we be seeing deflation a bit sooner?
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We're already seeing it - but the view is a bit distorted. Look at housing. The banks are holding off on both liquidations and foreclosures. If the prices were marked to the actual market, they would be a lot less than they are now.
Take a look at used goods - of almost any sort. Such things have little value, if any. For that matter, look at the value of the commodity index
HERE.
Later, we'll see it more clearly - those with cash can smile unpleasantly, put their thumb on the desk, and say to those who need cash "Do you know what position you're in?" while grinding their thumb into the surface. Notice there's no pink font on that one.
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Originally Posted by GratefulCitizen
MOO
-Some deflation is already here, it may get worse in the short term.
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Yep. Completely agree.
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Originally Posted by GratefulCitizen
-Much of the stimulus has yet to be spent -- look for a stealth spending blitz in August/September to bolster dims reelection bids.
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Could be. They need to create lots and lots of jobs - both for the purpose of stimulus and to persuade the voters. But I'm not sure they can get this done. We'll see.
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Originally Posted by GratefulCitizen
-Any stimulus, now or later, will just be funneled into commodities and lead to stagflation.
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Hmm...maybe. Maybe gold, silver, that sort of thing. But I think the cash will wind up being funneled into servicing unsustainable debt.
Please understand that I was, initially, of the opinion that all this printing and borrowing would result in overall inflation. The problem we (we as in the whole world) have is a gigantic overhang of debt. Incomes and earning power (individual, corporate, national) are under pressure - but the debt continues to demand payment. And as the bond market gets skittish, it becomes less practical to roll the debt.
Why do we care? As all this money flows into the economy (global and national), it falls into the black hole of debt. And then there is the money that goes into mere survival. It doesn't get spent on consumption (which fuels inflaton) - rather, it gets consumed by the past debts.
There's another issue. To get inflation, we need buying ability. As long as wages are under pressure and unemployment is high, companies have little pricing power. Sure, they can ask for $10 for a burger - but people will choose the 99 cent value menu. No pricing power, no inflation.
To get some idea of where we're headed, the book "This Time is Different" by Reinhart and Rogoff is worthwhile - particularly the second half of the book. It was recommended by Mauldin, BTW. The world is engaged in deleveraging - and we can expect another 3 years if historical norms persist.
After we work our way through this...and considering the massive printing (or, if you like, quantitative easing), yes, we'll see renewed inflation.
Back on gold and silver. People may lose confidence in currencies. They may lose confidence in the dollar. If that happens, they may migrate to precious metals as a way to preserve wealth.
By the way - deflation tends to be brutal. Few will enjoy such times.