Update: here is a very rough "article", culled from answers to questions of mine about these issues.
Just a brief post on something I may have more on later: a couple of my correspondents are saying that I should not be so worried about high inflation coming, because while a lot of money is surely being made, the very big dept defaults which have happened and will happen much more, are destroying more money than are being "printed"...
So some are actually predicting deflation instead, which may even cause for example precious metals to actually fall, at least in the US.
What they also say, and which I already suspect(ed), is that the big global downturn is not the one we just went through, it's much bigger and hasn't happened yet, including more banks folding.
I can't pretend to understand it all, I'm just trying to follow the best I can.
8 comments:
My house (in the NW U.S.) cost $US 195,000 in 2005. It was valued at $300,000 in 2007. It is now worth $125,000 and still going south. I think housing deflation is real and ongoing. Other goods and services seem to be holding, Credit interest is inflating big time and savings interest is still falling. Income is stagnant. Taxes are still rising. In other words I'm falling behind big time.
A bit of inflation would actually be a good thing if wages rose accordingly. The debt would stay the same but it would be easier to pay it off. It's why governments tend to favor inflationary policies over the alternative.
there is a nice video called
"Wie funktioniert Geld" (how money works"):
http://www.youtube.com/watch?v=9BrLrwbkQWQ
sorry, it is only in German but is very funny and quite insightful (and indeed bit scary).
The subtitle reads "a ten point plan for the efficient exploitation of a planet inhabited by half intelligent living beings"...
It's all very confusing. Maybe Schutte is right in distinguishing what's happening to high order capital goods (like real estate) and low order consumer goods (food, energy, etc.):
"As explained by Von Mises, as a result of Fractional Reserve Banking, fiat money and inflation, at a certain point, the prices of HOCG (high order capital goods) tend to fall and those of LOCG (low order consumer goods) tend to rise. In other words, we have a (hyper)inflation cycle but we still see some prices fall. We have (hyper)inflation and deflation at the same time. Rather confusing."
Source: http://seekingalpha.com/article/84819-hyper-inflation-deflation-hocg-and-locg
"including more banks folding"
Son, you've got to know
When to hold
Know when to fold
Know when to walk away
And when to run.
Son, you don't count your money
When you're sittin' at the table
There is time enough for countin'
When the deal is done.
(From a country song my Mom loves)
"Son, you don't deflate
When the chips are bet
And you should never bet your shirt
Or you'll end up hurt."
(My own follow-up impro :-)
"In other words I'm falling behind big time."
Actually, Kentg, in reality you'll only be falling down if two conditions are both met:
- It falls below what you PAID it, not what you could have sold it last year
- You need to sell it right now, or need its value to back a loan application.
On the other hand, if you're still paying for it, you can renegociate your credit, and end up a winner!
You can only truly lose what you once had in hand. Not what you might have gained "if only...".
"Not winning money" is absolutely not the same as losing what you actually DID have. It's arithmetically equivalent, but not factually, not to the wise mind. The virtual doesn't count, my friends.
"A bit of inflation would actually be a good thing if wages rose accordingly."
Yeah, except in Lebanon!
For many years, they kept raising the public wages to keep up with the inflation... but the State did so by financing the raise through inflation, making every raise immediately moot in terms of purchasing power brcause the prices soared as well!
"a planet inhabited by half intelligent living beings"?
Where is it? I want to emigrate there right away!
Would definitely be an improvement over THIS one. :-P
chThe rational for deflation is wrong.
The expansion of the money supply done by the US Federal Reserve is very large.
Some people or corporations put their savings in certain financial institutions. The financial institutions loaned the money. The person who received the money spent it.
So in this step 1, goods and services are being consumed from somebodies savings.
The loan was not payed back.
In Step 2 the fed gov't comes in and gives you back the money the bank lost for you.
You either spend or save it.
So in step 2 goods and services are again consumed.
Now where did the fed's get the money to pay you back? From taxes, from new debt? No...they just printed it...this has been done to the order of 10 trillion.
As soon as the US economy get's some speed...inflation is what you will get.
There cannot be painless foolish investing.
But the new money is being held by the banks and isn't technically part of the money supply yet. Unless it's all loaned out at once it's unlikely we'll see a huge jump in inflation. That doesn't mean it's a nil possibility, rather the odds are much lower than people like Peter Schiff would have you believe.
I think the era of rising wages for the middle class is over, kaput, gone. At least in the wealthier countries. Many other countries don't even have the luxury of a middle class -- it's poverty or privilege. That's the direction we're going too (the U.S. in particular). And sooner or later someone will pull the entitlement rug out from under us, and things will get truly nasty. But then I'm a dystopian so of course I think this way. Maybe everything will work out. I'll cry wolf to the end though!
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