Brilliant piece: http://www.american.com/archive/2011/aug...-time-bomb

If the Euro goes into free fall....I'm sorry....When the Euro goes into freefall, the UK and the US are going to be forced to institute more inflationary measures(QE3) just to keep deflation from crippling us from the death of any type of demand in Europe.

I used to think we were headed for deflation too. Can't see that now. Not in the cards.

(08-08-2011 09:29 PM)Machiavelli Wrote:  I used to think we were headed for deflation too. Can't see that now. Not in the cards.

Are you kidding me? Everything screams deflation right now. We've tried to cause inflation twice but with no success. Interest rates are almost as low as they can go. Demand is low but only going to get lower with a Euro crash. The only sign that inflation might be on the horizon is the price of gold but people have been running to gold for 5 years with little actual inflation.

I used to think that way. I don't think the powers that be will allow it now. QE3 is on the way. It's the only bullet they have left. You won't see a stimulus in this political climate.

(08-08-2011 09:46 PM)Machiavelli Wrote:  I used to think that way. I don't think the powers that be will allow it now. QE3 is on the way. It's the only bullet they have left. You won't see a stimulus in this political climate.

I have no reason to believe that QE3 will cause any inflation when QE1 and QE2 didn't work in environments much more conducive to inflation than what is coming.

(08-08-2011 09:57 PM)aTxTIGER Wrote:  

(08-08-2011 09:46 PM)Machiavelli Wrote:  I used to think that way. I don't think the powers that be will allow it now. QE3 is on the way. It's the only bullet they have left. You won't see a stimulus in this political climate.

I have no reason to believe that QE3 will cause any inflation when QE1 and QE2 didn't work in environments much more conducive to inflation than what is coming.

Qualitative easing has had a big effect on necessities (although it took awhile to work itself down the supply chain). We have $3.50 gas right now in-spite of less demand. We have food prices creeping up quite a bit. A lot else remains unchanged, but the things we have to buy regardless are very much effected by qualitative easing. I agree deflation is coming, but I think QE is having a significant impact on prices of a lot of things we have to have.

It's also a big deal that qualitative easing is in no way actually legal for the Fed to do. It's never gotten any kind of authority to cover this and I very much hope Bernanke ends up in prison someday for all that the Feds has done illegally (not that Congress has done anything to stop him).

(08-08-2011 10:09 PM)ohio1317 Wrote:  

(08-08-2011 09:57 PM)aTxTIGER Wrote:  

(08-08-2011 09:46 PM)Machiavelli Wrote:  I used to think that way. I don't think the powers that be will allow it now. QE3 is on the way. It's the only bullet they have left. You won't see a stimulus in this political climate.

I have no reason to believe that QE3 will cause any inflation when QE1 and QE2 didn't work in environments much more conducive to inflation than what is coming.

Qualitative easing has had a big effect on necessities (although it took awhile to work itself down the supply chain). We have $3.50 gas right now in-spite of less demand. We have food prices creeping up quite a bit. A lot else remains unchanged, but the things we have to buy regardless are very much effected by qualitative easing. I agree deflation is coming, but I think QE is having a significant impact on prices of a lot of things we have to have.

It's also a big deal that qualitative easing is in no way actually legal for the Fed to do. It's never gotten any kind of authority to cover this and I very much hope Bernanke ends up in prison someday for all that the Feds has done illegally (not that Congress has done anything to stop him).

QE did have an impact on oil prices marginally but don't confuse correlation with causation. There were many reasons why the price of oil went up that had nothing to do with QE.

I'm with aTxTIGER. It seems that Quantative Easing has stopped deflation to a point but we have seen very little inflation across the boards. Oil dropped below $80. Yields on Bonds really hasn't been that effected that bad yet.

With that said, what happened in the markets about an hour to an hour and a half ago. Footsie was down 7% and now they're down 1%, Nikkei was down by as much as 4% and now down around 2.25%. Even the Dow seems to be a little better as the Futures are down 157 points compared to around 300 earlier.

(08-08-2011 09:36 PM)aTxTIGER Wrote:  

(08-08-2011 09:29 PM)Machiavelli Wrote:  I used to think we were headed for deflation too. Can't see that now. Not in the cards.

Are you kidding me? Everything screams deflation right now. We've tried to cause inflation twice but with no success. Interest rates are almost as low as they can go. Demand is low but only going to get lower with a Euro crash. The only sign that inflation might be on the horizon is the price of gold but people have been running to gold for 5 years with little actual inflation.

Both inflation and deflation were competing forces until quite recently when the debt crises in Europe came to the forefront. Everyone is afraid of seeing their money being thrown down a rat hole, so we are hoarding money until we figure out how to handle the debt. It's confusing because within the U.S. economy alone, we are beginning to see deflationary pressures via falling prices. But internationally, the dollar is still historically weak compared to the Canadian dollar, Yen, Australian dollar and the Euro. When the Euro first came into existence, I believe it was valued around $0.75 USD. Also, the Yen historically traded within a range of 110 - 140 Yen/USD ratio. So it will be very difficult to fight deflation at home when the currency is significantly devalued abroad. This is the disadvantage to our interconnected global economy where currencies float vs. the 1930s when currencies were backed by gold and silver.

Captain obvious says that the only fix that will get us out of this mess is for demand to improve inside the U.S. I don't see this happening until consumer debt is purged out of the system. There is slack in the system because of too much consumer debt. Business investment will not happen until they see real consumer demand, and businesses are not sure how Obamacare and the other Obama regulations will affect them. This too is taking away business incentive to invest in cheap assets during a downturn. The quickest fix, IMO, occurs when there is a new president in the WH. When the gov't begins to act in a predictable manner again and begins to show business some love, the economy will turn around.

(08-08-2011 09:36 PM)aTxTIGER Wrote:  

(08-08-2011 09:29 PM)Machiavelli Wrote:  I used to think we were headed for deflation too. Can't see that now. Not in the cards.

Are you kidding me? Everything screams deflation right now. We've tried to cause inflation twice but with no success.

Bingo.

With oil prices dropping (hard and fast) deflation is already happening. Stock prices down, real estate prices down, oil prices down, food prices down.

Quote: Interest rates are almost as low as they can go. Demand is low but only going to get lower with a Euro crash. The only sign that inflation might be on the horizon is the price of gold but people have been running to gold for 5 years with little actual inflation.

True enough.

And Vox Day is a happy man.

Inflation has been slow to rear its head because the financial sector is setting on huge excess reserves because they're terrified.

But now that that liquidity is in the market, it WILL circulate eventually.

(08-09-2011 08:05 AM)miko33 Wrote:  When the gov't begins to act in a predictable manner again and begins to show business some love, the economy will turn around.

Quoted for Truth.

(08-09-2011 09:18 AM)Lord Stanley Wrote:  

(08-09-2011 08:05 AM)miko33 Wrote:  When the gov't begins to act in a predictable manner again and begins to show business some love, the economy will turn around.

Quoted for Truth.

The gov't has been showing big business plenty of love, and that's a large part of the problem. Corporatism has made it almost impossible for SMBs to compete.

Business aren't not doing anything based on the government. They aren't doing anything(hiring especially) because THERE IS NO DEMAND!!!!! If there was demand, businesses wouldnt give a **** what the government was doing.

(08-09-2011 12:37 PM)aTxTIGER Wrote:  Business aren't not doing anything based on the government. They aren't doing anything(hiring especially) because THERE IS NO DEMAND!!!!! If there was demand, businesses wouldnt give a **** what the government was doing.

You do realize all that **** is tied together, right? Demand doesn't operate in a vacuum. Demand increases when the people have market and economic confidence, just as businesses do. Obama has a HUGE hand in creating this negative environment. People aren't going to buy when they don't know if they're going to lose their job or their savings tomorrow.

(08-09-2011 10:34 AM)BlazerFan11 Wrote:  

(08-09-2011 09:18 AM)Lord Stanley Wrote:  

(08-09-2011 08:05 AM)miko33 Wrote:  When the gov't begins to act in a predictable manner again and begins to show business some love, the economy will turn around.

Quoted for Truth.

The gov't has been showing big business plenty of love, and that's a large part of the problem. Corporatism has made it almost impossible for SMBs to compete.

My company is currently sitting on $30+ million dollars due to the uncertaintly of Obamacare alone. That $30+ million doesn't include one penny devoted to savings for the probabilty of increased taxation, regulation, or other potential human capital regulations

That's $30+ million dollars not going to R&D, Sales, Supply Chain, Trade Marketing, Consumer Insights, or Pricing... That's money that wasn't in the end of the year pot for raises and bonus. It means we move less people, it means we hire less people, it means we retain less people.

And that is just one example, from one company. $30+ million dollars not in the economy, because of the government's inabilty to chart a clear course.

(08-09-2011 12:42 PM)Rebel Wrote:  

(08-09-2011 12:37 PM)aTxTIGER Wrote:  Business aren't not doing anything based on the government. They aren't doing anything(hiring especially) because THERE IS NO DEMAND!!!!! If there was demand, businesses wouldnt give a **** what the government was doing.

You do realize all that **** is tied together, right? Demand doesn't operate in a vacuum. Demand increases when the people have market and economic confidence, just as businesses do. Obama has a HUGE hand in creating this negative environment. People aren't going to buy when they don't know if they're going to lose their job or their savings tomorrow.

There was worldwide economic uncertainty in the 90s especially in Europe and parts of Asia, but there was a demand increase for a variety of reasons(new technology, opening of markets, etc). Yes, there is economic uncertainty in regulations, etc in the US and it is a problem, but strong worldwide demand would trump that. They are both problems but lack of demand is a much worse problem. With that said, we still need to fix our own house.