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Originally posted by Krypton Inflation is the least of our worries right now... http://finance.yahoo.com/news/Consu...2&asset=&ccode=

Of course they are dipping, there weren't any sales over Christmas. The retail sector is forced to sell at reduced prices to clear winter inventory and re-stock with summer goods. Unfortunately the combination of forced price reductions and unavailable credit is going to put some companies out of business.

Others might cope by only partly re-filling thier inventory, waiting for the economy to pick up again. But by the time they are ready to buy again inflation will have hit and they won't be able to re-stock.

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Originally posted by atbell Of course they are dipping, there weren't any sales over Christmas. The retail sector is forced to sell at reduced prices to clear winter inventory and re-stock with summer goods. Unfortunately the combination of forced price reductions and unavailable credit is going to put some companies out of business. Others might cope by only partly re-filling thier inventory, waiting for the economy to pick up again. But by the time they are ready to buy again inflation will have hit and they won't be able to re-stock.

ok, so inflation fear mongers really need to put a sock in it.

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Originally posted by atbell I've got 12 articles in the folder in front of me that all point to inflation, none that say otherwise.

The article Krypton posted is a good start, but basically you need to read more Krugman, Reich, and Sachs, because they've all been pretty prolifically vocal about the impending deflationary threat.

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Originally posted by Krypton ok, so inflation fear mongers really need to put a sock in it.

you seem to be concerned about only today, while those worried about inflation are concerned about today and years from now. Inflation concerns are very relevant. The fed has utilized measures to expand the money supply that it has never used before, i.e., the purchase of corporate debt. When the fed needs to contract money supply it normally sells government securities. In 4 or 5 years from now when the fed needs to contract money supply it will have to sell the corporate debt instead of the treasuries. That isn't going to be as effective as when the fed sells treasuries. People have legitimate concerns about how the fed is going to unwind its portfolio and whether there will be purchasers waiting to buy the fed's assets.

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Originally posted by Lebezniatnikov The article Krypton posted is a good start, but basically you need to read more Krugman, Reich, and Sachs, because they've all been pretty prolifically vocal about the impending deflationary threat.

I'm not sure about the threat of deflation. Use the core inflation numbers (which excludes volatile energy costs) to determine the real threat. The article provides core inflation way up almost 2% over the past year.

Aside from the volatility aspect of excluding energy from inflation discussion, excluding energy is preferable because lower cost of energy is bad mainly for energy producing nations. In the aggregate, lower energy costs would be good for the american economy, outside of Exxon and the oil companies. As a result, if the primary component of deflation was a reduction in energy prices that wouldn't necessarily be a bad thing for the economy. At worst, companies would see declining revenue (most likely stable revenue) with an increase in net income because of lower expenses.

Last edited by jerZ07002 on Apr-15-2009 at 17:42

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Originally posted by Lebezniatnikov The article Krypton posted is a good start, but basically you need to read more Krugman, Reich, and Sachs, because they've all been pretty prolifically vocal about the impending deflationary threat.

Krugman and Reich? *cringe* Dear God man, broaden your horizons.. You've been watching too much West Wing I think. And sorry, but the "deflation threat" is an absolute joke in light of the amount of stimulus we've seen. We might have a temporary dip in prices but regardless of what Krugman says, this is NOT a symptom of deflation. We can't have true deflation while the money supply is soaring to all time highs. What we have now is disinflation..an unpleasant but necessary consequence of the preceding inflationary boom. The market is trying to throw off past excess and to wash symptoms of the previous intervention out of the economic system. It's trying to purge the malinvestment and distortions of the past few years, and this means prices that were too high to begin with need to fall. They need to return to normality.

I hate to use a nasty analogy but think of it this way.. If you eat a pound of rat poison then puke it up, the experience can be very unpleasant..but it's not harmful to your body..It is not making you thinner than you should be or reducing your lean muscle mass.. On the contrary, it's simply a purge of the bad stuff that shouldn't have entered your body in the first place...Puking may be an unpleasant thing, but it is nature's way of correcting the mistakes you've made, and it is ultimately a healthy process.

The fact is that the past few years of growth in America were built on ceaseless credit expansion. Our prosperity was built on debt and massive leverage rather than savings and sound investment. It is perfectly possible to have a temporary credit-based boom..a strong GDP with rising income and asset prices. This is indeed what happened, but that type of growth is NOT healthy and not sustainable.. It was a phony economy loaded with malinvestments that needed to be purged. The economy is attempting this unpleasant process now.. Some of the poison has been purged, but unfortunately the fed and treasury are refusing to let nature take it's course. They are refusing to let the process finish and have instead decided to make the patient feel better by giving him massive amounts of painkillers and anti-regurgitation drugs (stimulus plans, loans, bailouts, nationalization, debt monetization, etc). They are doing whatever it takes to get the patient walking around and feeling ok in the present, while leaving that pesky poison in his stomach for future generations to worry about. Their actions might buy a little time and happiness for the America, but the patient (us) is going to be in a much worse state over the long run.

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Originally posted by Capitalizt let failed companies go down and not to prop them up

Everybody loves this in theory, but think of the real life implications here. If you have already, are you really comfortable with them?

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Originally posted by ******** Seplling don't demonstrate intelligence and educatoin - knowing does.

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Originally posted by Krypton ok, so inflation fear mongers really need to put a sock in it.

I don't think it's that simple.

Both inflation and deflation are presenting risks and from what I've read I don't get the feeling that anyone would say differently.

I think the real problem with concern about price levels right now, and probably since September, is that deflation apears quickly and takes effect quickly yet any attempts to balance it could easily over shoot because of the uncertain time lag between monetary intervention and the effects on the economy.

I'm also of the opinion that the problems with deflation are not as bad as those with inflation. All of the case studies of inflation seem to have really nasty social concequences associated with them where as the only case of deflation that I'm aware of (Japan) just meant a slow economy, not a war.

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Originally posted by Clovis Everybody loves this in theory, but think of the real life implications here. If you have already, are you really comfortable with them?

Yep...I know it's not a popular idea but we need to take our medicine. A recession/depression is the cure. By continuing to delay the pain we are only going to make it worse when it finally hits. The country has been on the same path for a while now..blowing credit bubbles untill they pop..then reinflating them with more credit..causing the bubbles grow larger and larger each time. The cycle can't go on forever. We need to allow all of the bad assets to be purged..bad companies to go under..bad debts to be written off.. We can't keep propping up failed enterprises and papering over mistakes of the past with new money and more debt. The cancer needs to be cut out before we can have a healthy recovery. It's absolutely necessary, but cancer surgery is never pleasant.

So we can put the discussion in a bit more context here's the Federal Reserves description of the money supply as of April 2009:

http://www.federalreserve.gov/releases/h6/Current/

You will notice that it grew 9% over the 12 month period of Feb 08 to Feb 09. From the Econ text I've been studying this translates exactly into a 9% price rise once equilibrium is reached, ... yeah, so I think what the means in real terms is that inflation is going to trend toward 9% over say a year before the effects of the growth in money supply wear off.

This is in the middle of a credit crunch, a time when money supply is supposed to be shrinking if deflation is really an issue. That makes me think that the increase in money supply is odd considering how many people / businesses are said to be deleveraging.

To late in the day to think about this more. I definately recomend taking a look at the h-6 report, it gives a good sense of exactly how big the bailouts are relative to the existing money supply (8.2 Trillion M2 means that the two bailouts, ~1.4 trillion, increase money supply by about 17%, assuming they are paid off by printing money)

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Originally posted by Capitalizt Yep...I know it's not a popular idea but we need to take our medicine. A recession/depression is the cure. By continuing to delay the pain we are only going to make it worse when it finally hits. The country has been on the same path for a while now..blowing credit bubbles untill they pop..then reinflating them with more credit..causing the bubbles grow larger and larger each time. The cycle can't go on forever. We need to allow all of the bad assets to be purged..bad companies to go under..bad debts to be written off.. We can't keep propping up failed enterprises and papering over mistakes of the past with new money and more debt. The cancer needs to be cut out before we can have a healthy recovery. It's absolutely necessary, but cancer surgery is never pleasant.

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You want change you have to let things fail, not just cast a balot for the person who seems most different every 4 years.

All of the past case studies say pretty much exactly what is said above, the longer reality is held at bay the worse things get.

That's todays worry (fuck, I've got to get out and party a bit so I don't just jump from worry to worry), that a rally will have legs and just add to a bigger bubble.

If the bubble gets to big unwinding it goes from a year or two without Christmas presents to massive civil unrest. Figuring out where on things lay on that scale is extremely difficult. I just hope things aren't that far already.

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Originally posted by Capitalizt Yep...I know it's not a popular idea but we need to take our medicine. A recession/depression is the cure. By continuing to delay the pain we are only going to make it worse when it finally hits. The country has been on the same path for a while now..blowing credit bubbles untill they pop..then reinflating them with more credit..causing the bubbles grow larger and larger each time. The cycle can't go on forever. We need to allow all of the bad assets to be purged..bad companies to go under..bad debts to be written off.. We can't keep propping up failed enterprises and papering over mistakes of the past with new money and more debt. The cancer needs to be cut out before we can have a healthy recovery. It's absolutely necessary, but cancer surgery is never pleasant.

But that's not what you're talking about. You're talking about not treating the cancer at all in the hopes that the patient's immune system takes over and fixes itself.

___________________
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