Not going to have deflation

[fccool]

http://www.bloomberg.com/apps/news?pid=20601109&sid=arEE1iClqDrk&refer=home

How about a 50% inflation?

[Dr. Shane]

The government will go to price controls and rationing before they let inflation get up to 50%.

[fccool]

Highly doubt that. It's in their interest to have inflationary policies to weaken dollar, so that the foreign debt will be easier to pay off. We've seen it again and again in history of the world. The only thing the Fed can do now is to create money. There's hardly any interest left to cut.

[Dr. Shane]

We won't see 50% inflation. That would mean people actually starving to death. It is not going to happen. The government will impose rationing and price control before that happens. I don't care what the conspiracy theories say.

[Bravus]

I think fccool's point is that all this bailout money is not going to come out of nowhere. It's going to have to be borrowed or printed. If it's printed, it devalues the existing currency... hence inflation. You might not see internal price inflation at 50% in the US, but as the currency becomes less valuable you could well see that relative to (some parts of) the rest of the world. Of course, as he also points out, that may make international debts easier to pay off, at least if they're denominated in US$.

[fccool]

We won't see 50% inflation. That would mean people actually starving to death. It is not going to happen. The government will impose rationing and price control before that happens. I don't care what the conspiracy theories say.

Shane... it's not a conspiracy theory. It's solid economic facts. Why do we have inflation? Money supply increase. Here's a hard facts inflation calculator based on CPI (which imo is very moderate when calculation inflation effects).

http://www.westegg.com/inflation/

If you calculate from 1990 to 2007... you'd get $100 of 1990 would buy you $155 of today.

In 2007 M3 was $11,203 , in 1990 m3 was $4,092. It nearly tippled. Yet, obviously, increased productivity did curb the inflation effects. Yet for that productivity to increase we've had nearly 20 years of time span.

Now, Fed is injecting nearly 10! trillion in less than a year. That's a double of what is already out there. Will the productivity double this year? I don't think so. So, what happens to all of the excess money in the market? Sure, banks may resume lending, but you will certainly see the cost of living skyrocket by the end of the year. Look at history! Why do people keep insisting that this time is different and it might just work out fine?

http://www.sjsu.edu/faculty/watkins/hyper.htm

And again, by 50% inflation... I don't mean 50% hike in prices. Inflation is NOT rising prices the way I understand economics. There are various factors that effect rising prices. It's hard to uniformly say we have a certain % of inflation based on hike in prices. Inflation originally referred to inflating the supply of currency in classic economic theories. One of the greatest factors is the amount of money available compared to the amount of goods in demand. If there's too much money, the goods will worth more compared to the money. Prices will rise if the currency supply is inflated.

[Dr. Shane]

This is a classic definition of inflation: a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).

Prices should rise as the volume of money increases. That is what occurs in the free market. However what we are seeing is not the free market at work. Prices will not increase 50% over a year because the government will not allow that. And because prices will not increase at the same rate that the money supply has increased it will be deflation not inflation.

I hear Glenn Beck on the radio screaming about the coming inflation but we haven't seen it, have we? In fact, as the Federal Reserve pumps more money into the system the value of the dollar is staying steady. I cross into Mexico frequently and the bridge toll coming back continues to get lower as the value of the dollar climbs.

[fccool]

And because prices will not increase at the same rate that the money supply has increased it will be deflation not inflation.

Does not make sense. Government does not have direct control over retail prices. They simply can't say sell for less, because the producers would take losses.

Consider the gas prices... taking a nearly 100% hike within a year. Did we have any emergency actions from the government? Nop. Same for the housing prices... Higher prices, means higher tax revenues. I doubt they would take any serious actions that you've been talking about.

We will see the effects of inflation by mid 2009. It's not something immediately noticeable. You can't inject 50% more into current money supply and expect nothing to happen.

[Dr. Shane]

Government has implemented price controls during WW2. However price controls cause shortages so when price controls are implemented rationing needs to be implemented too. That was done with an a whole host of products during WW2. Bush could have done that with gas prices if he had so desired.

We have been seeing inflation over the past few years - driven mostly by oil and gas prices. It has been as high as 5%. In 1979 it was 13% and that cost President Carter re-election. Unless we are at the end of the world, I cannot foresee any condition where we are going to see 50% inflation. That is simply alarmist.

[fccool]

The only reason that US does not have inflation, is because it was exporting it in form of loans and treasury papers. Now the foreigners are stuck with a delima... they do have "wealth" but they can't do anything with it, because the moment they will attempt to trade it for something else... it will loose value. Brilliant.

[CyberGuy]

http://www.bloomberg.com/apps/news?pid=20601109&sid=arEE1iClqDrk&refer=home

How about a 50% inflation?

Deflation is when the their is a high inventory of goods and the prices fall.

1. To many houses on the market and not enough buyers.

Result Falling housing prices. Predictions is it will fall another 20 percent within another year.

2. Falling gas prices. Now less than $2 a gallon.

3. Go to the Stores the day after Thankgiving this friday and see all the markdown and sales. Stores slashing prices to make sales. Better to make a little profit than let the item sit and not make any profit.

4. Car dealers cutting costs of cars.

Hyper inflation? I doubt it. They have been predicting that for decades and nothing has happened.

Remember this. People keep talking about printing money. In fact most of the exchage of money is not in cash at all. How often do you pay your bills in cash. Do you write a check or direct pay via the internet or pay bills via the internet via your bank account.

It is estimated there is less than 1 percent of cash in actual dollars to fund our several trillion dollar annual economy. Most bills are paid via checks or wire transfers. Just numbers not cash. So there is not a surplus in actual dollar bills around.

[Bravus]

Yeah, but 'printing money' is only a metaphor. The Fed is creating money out of thin air, and the fact that it's in electrons rather than paper doesn't change that. More money (in whatever form), same production, means each unit of money is worth less.

[Bravus]

I think one of the problems we all have around this - I know I do - is that we still tend to think about nations as systems unto themselves, and to think in national terms rather than global terms. But we are part of a global economy,a nd any action by one player has effects for all. Failing to consider that will often yield mistaken impressions of the results of any particular factor. And anay analysis is subject to being altered by actions of other nations over which a particular nation has no control.

[Dr. Shane]

Building on that, some of the anti-America folks believe the US consumes too much of the world's goods and services. Actually, I believe, it is the rest of the world that doesn't consume enough. I agree the % of US consumption of the world's goods is out of balance. As a result, when the US economy slows down the entire world follows. If the size of the US economy was the same as that of a few others like Japan, China, EU, Indian then a slow down in any one economy would not impact the entire world to the same degree.

Of course, the economy is fueled by oil and that is something we want to get away from because there is not enough oil for all the world's major economies to grow the size of the US economy. Nuclear power is a feasible means to take oil's place.

[fccool]

Quote:

Remember this. People keep talking about printing money. In fact most of the exchage of money is not in cash at all. How often do you pay your bills in cash. Do you write a check or direct pay via the internet or pay bills via the internet via your bank account.

It is estimated there is less than 1 percent of cash in actual dollars to fund our several trillion dollar annual economy. Most bills are paid via checks or wire transfers. Just numbers not cash. So there is not a surplus in actual dollar bills around.

It makes no difference . The inflation is not only applied to paper money. Only 5% of all money in the world is paper. Money is simply an exchange unit. It could be a paper, or a digit.

The reason we did not have hyperinflation here... is because US cyphons much of the dollars out through IMF to the third world as "aid". The domestic supply of money is kept up just enough to have very mild devaluation. That's where Greenspan excelled at. He was able to keep the inflation at bay, in spite of enormous amount of consumer debt money circulation in the economy.

If you consider the fact that 80% of all transactions in the world are made using dollars... you will understand why we did not have hyperinflation in US. People hold dollars as debt to US and debt from US. The dollar is wrecking hawok in their economies, and inflating their money supply. So, US has been effectively exporting inflation for a while now.

US economy is a closed bubble for a reason. If it allows the dollars to come back in form of investment and buy out domestically, you would have problems here. But if you print dollars, and allow other nations to only print so much as their dollar holdings in IMF... you have successfully prohibited other nations from doing the same.

Right now Russia is pushing heavily for China to drop dollar for trading between Russia and US. When and if this happens.... watch out.

http://zaxi.livejournal.com/498888.html

[CyberGuy]

Building on that, some of the anti-America folks believe the US consumes too much of the world's goods and services. Actually, I believe, it is the rest of the world that doesn't consume enough. I agree the % of US consumption of the world's goods is out of balance. As a result, when the US economy slows down the entire world follows. If the size of the US economy was the same as that of a few others like Japan, China, EU, Indian then a slow down in any one economy would not impact the entire world to the same degree.

Of course, the economy is fueled by oil and that is something we want to get away from because there is not enough oil for all the world's major economies to grow the size of the US economy. Nuclear power is a feasible means to take oil's place.

The U.S.A gets a nervous when other nations unfriendly to the U.S.A starts to build nuclear power plants for the generatation of electricity. Nuclear power plants can also be used to make Plutonium which is a key element of nuclear weapons. So who can have nuclear power plants? Only the vountries in Europe and the USA and Canada and Japan? Not Iran and North Korea and other nations who want to prepare for the day when Oil is not as plentiful? Nuclear power is a sticky global problem.

[CyberGuy]

China according to that article us unlikely to do that because they hold so much in US Debt. To do so will devalue their own holdings. Russia wants the Russian currency to be the basis in trade with China because the Dollar is gaining strength against the Ruble.

People speak of hyper inflation. If that happens the dollar will plumment against other currencies. So far the dollar is gaining strength. in fact part of the problem this summer with the raising of the cost of oil is that the dollar was falling against other currencies. Now with the Fed pumping the money supply and proping up the banks the Dollar is raising against other currencies making the cost of oil cheaper for us but more expensive for the rest of the world.

There has to be one currency in trade or there would be confusion over what to pay for goods and services. Right now as the leading economic power the USA currency dominates world trade.

[fccool]

China according to that article us unlikely to do that because they hold so much in US Debt. To do so will devalue their own holdings. Russia wants the Russian currency to be the basis in trade with China because the Dollar is gaining strength against the Ruble.

People speak of hyper inflation. If that happens the dollar will plumment against other currencies. So far the dollar is gaining strength. in fact part of the problem this summer with the raising of the cost of oil is that the dollar was falling against other currencies. Now with the Fed pumping the money supply and proping up the banks the Dollar is raising against other currencies making the cost of oil cheaper for us but more expensive for the rest of the world.

There has to be one currency in trade or there would be confusion over what to pay for goods and services. Right now as the leading economic power the USA currency dominates world trade.

Why not The US has showed no intentions so far to pay the debt back. At some point in time China will have to decide between working for their own people, or working to support US debt. Which one do you think will it choose?

Obama thus far has shown no intentions to address the problem of foreign debt... and why would he?

[CyberGuy]

China works to make money. True communism is dead. China as a true communist state is dead. It is communist in name only. It is a capitalist state in every sence of the word.

So looking out for its own people is what they are doing. More people own cars than ever before. They are using more oil than ever before. It is estimated they will be using more oil than the USA by 2020 and maybe sooner. The big concern is pollution. China puts out so much polution that satelites can see it spread out from china all the way to the USA. Much of the pollution here in the USA is curtousy of China.

Yes China buys part of our debt but do you really think that there ever will be a shortage of TBills to sell.

Obama wants to spend spend spend spend us out of this mess. I think in three years we will be out of the problem as long as the banks do not fail no matter what the feds do. They should prop up the banks but that is all they should do. Let the big three reorganize under chapter 11 if they have to.