37 replies to this topic

[pdx5]

Hard to believe that with all this money being thrown at the economy that deflation is the result. Anything is possible, but I don't give that much of a chance. In fact, if there's even a further hint of it, I expect to see more pumping, more printing.

IT

I have to believe NAV's deflationary scenario has merit. It is true that the Obama admin is throwing
humongous money into the economy but it is mostly for Pork projects, Green Energy and Healthcare
for the uninsured. I have never seen gubbermint directed and mandated initiatives to ever generate
profitable products. USSR tried it (5 year plans) , India tried it (banks, railroad, telephones etc),
China tried it (cottage industry) and everything was a dismal failure. The "green energy" will be
no different, with lots of tax payer money down the rat hole. Only products created for market
driven demand have best chance of success.

So what I see is economy with lots of froth for next couple of years with the stimulus money
and then the tax payers will be stuck with the bill and not many permanent jobs/businesses
created. This is exactly same as a household which has borrowed huge amount of money and
spent it on "stuff" and "fun" but not on improving skills or starting a business venture. It will
always end badly.

So yes, deflation is a distinct possibility after the party is over.

[NAV]

Its doubled since what....February? The media is calling it the "reflation" trade. I got no problem if you want to use $147 as the benchmark, but when do we start using something else? For instance, I can remember oil under $10 a barrel.....what's that....700% inflation?

Or maybe we can talk about how much stocks are up since 1974 when the Dow was 550..ala Larry Kudlow.

IT

IT,

We are talking about the deflationary trend here. There will be bumps in certain sectors along the way. Yes the OIL went from from 30 to 70. It's like saying the BDI went from 1200 to 3600, a whopping 200% gain (after falling down from 11600 to 1200) .

[IndexTrader]

It's all a question of where you decide to put the benchmark. I think a move from 30-70 in a matter of a few months is a significant move. Deflation? Reflation? Inflation? Obviously we've had deflation. The question is what comes over the next several years. You say even worse deflation. I think not. Reflation, then inflation is what I think happens, based on the FED. By the way pdx, I'm talking about the Fed actions, not what the Obama administration did. The next question will be whether the Fed monetizes all that debt. My guess is they will. IT

[humble1]

there is no "will" to the FED monetizing the debt, it IS doing so every day as it purchases treasuries and MBS in the open market and puts them on its balance sheet. and, of course, that is one of the many equity bullish factors.

Edited by humble1, 30 June 2009 - 10:35 PM.

[pdx5]

And when the Fed monetizes the debt it is adding interest payment burden to the already bloated servicing the debt payments. And that has the effect of raising interest rates. And that can never be good for businesses. Which in turn hurts employment numbers. No one can guarantee inflation or deflation will be the next major problem. However for inflation to take hold, there has to be more dollars chasing fewer goods & services. In the past several decades in the United States, loose monetary policy usually resulted in inflationary results. However lately there has been very tame inflation! And that is in spite of loose monetary policy from the Fed/Gubbermint. Why????? My hypothesis says there is no shortage of goods & services due to mainly the BRIC countries. As long as there are enough goods available to absorb all those dollars printed, there can not be general inflation save some limited supply commodities. However as interest rates rise, unemployment rises, deflationary forces are in play which can not be counter acted by the BRIC's in US.

[humble1]

pdx: when the fed buys treasuries, who gets the interest? the FED gets it and it stays in the total US gubmit kitty.

Edited by humble1, 01 July 2009 - 01:40 AM.

[dasein]

and when the FED buys MBS it gets a piece of the MBS pie - with foreclosures etc - for which it traded Treasuries...so, it loses principal, wiping out any interest payment profits....and more...

[pdx5]

pdx:

when the fed buys treasuries, who gets the interest?

the FED gets it and it stays in the total US gubmit kitty.

LMAO ROFL....

and where does the Fed get the money to buy US Treasuries?
Is it from Bernanke's savings account? Or is he just printing it?

How is that good for the US Dollar, US Savers, US Retirees
or US economy?