Deflation is coming

[opebo]

Deflation is coming because of inadequate government spending, inadequate quantitative easing, and inadequate credit growth.

[J. J.]

Deflation is coming because of inadequate government spending, inadequate quantitative easing, and inadequate credit growth.

QFT

[True Federalist (진정한 연방 주의자)]

The problem with Elliot Wave theory (and those who believe in it) is that in order to benefit maximally from it, you have to have everyone else ignoring it.  Like many economic theories, it ignores that economics is subject to the observer effect just as physics is.  Gold may well come crashing down in a year or two, but that won't be due to deflation, any more than its rise was due to inflation.  Gold is simply a very volatile commodity, and commodities in general are volatile.

In any case, one cannot hope to continuously inflate the economy to prosperity.  If one tries that, one ends up with stagflation.

[opebo]

In any case, one cannot hope to continuously inflate the economy to prosperity.  If one tries that, one ends up with stagflation.

That's a baseless assertion, but anyway not relevant.  Even if it were true, which seems unlikely, the point is we're in free-fall right now, and need far more reflation than has been attempted.

[cinyc]

In any case, one cannot hope to continuously inflate the economy to prosperity.  If one tries that, one ends up with stagflation.

That's a baseless assertion, but anyway not relevant.  Even if it were true, which seems unlikely, the point is we're in free-fall right now, and need far more reflation than has been attempted.

I'll keep that in mind the next time I pay more to fill my gas tank or buy a loaf of bread.

[True Federalist (진정한 연방 주의자)]

the point is we're in free-fall right now, and need far more reflation than has been attempted.

Strange definition of free-fall you have.  The US is not rising as fast as anyone would like (except politicians who expect to pin the malaise on their opponents) but we're hardly falling right now.  If the US does start falling again, it will because of the push caused by a long-term spike in oil prices, but right now there is no evidence that what is going on in Libya will last more than a month or that the current instability there will lead to similar instability elsewhere. Indeed, it is doubtful that in those countries where a violent counter-revolutionary response is likely than a jasmine-style revolution will occur soon in a significant oil producing country.  Yemen could still go up in flames, but there was smoke pouring from there before this all started.

[Gustaf]

In any case, one cannot hope to continuously inflate the economy to prosperity.  If one tries that, one ends up with stagflation.

That's a baseless assertion, but anyway not relevant.  Even if it were true, which seems unlikely, the point is we're in free-fall right now, and need far more reflation than has been attempted.

So, how come Germany and Sweden are doing so well, when we had among the sharpest initial falls, among the smallest stimulus packages and ran relatively small deficits?

[Ban my account ffs!]

In any case, one cannot hope to continuously inflate the economy to prosperity.  If one tries that, one ends up with stagflation.

That's a baseless assertion, but anyway not relevant.  Even if it were true, which seems unlikely, the point is we're in free-fall right now, and need far more reflation than has been attempted.

So, how come Germany and Sweden are doing so well, when we had among the sharpest initial falls, among the smallest stimulus packages and ran relatively small deficits?

Why did Germany lag so far behind everybody after the 2001 recession?  Some parts of Germany saw their peak unemployment rates in 2005, the heart of the last expansionary period.  It has more to do with Germany being an exporting economy.  With low domestic demand because of demographics and other factors, Germany turns to exporting... which grows the economy as productivity rises from automation and technological advances allows a smaller working population to produce more goods.

And with lower prices and robust demand in other parts of the world, they can succeed.

The U.S. is almost completely the opposite, instead relying on imports and domestic spending to provide economic growth.  With necessities eating up a larger and larger portion of perpetually shrinking paychecks, demand has been decimated on "wants".  While commodities are expensive because of freak weather and investment by those who see them as a safe investment, there is a major risk for a deflationary spiral because demand and spending on non-necessary goods will decline and trigger economic contraction in those areas while the economy is propped up by high commodity prices.  When those prices fall, say, due to a summer of ample rain and sunshine, the collapse can begin...

Already, GDP growth for Q4 was revised downward because of reduced government spending and further major cuts from state and local governments and possible cuts from the federal government could further reduce economic growth.

Even as this happens, exports are increasing and there is job growth in the manufacturing sector in many areas of the U.S.  But because we've already decimated those sectors after 30 years of import/borrow and spend/trickle down "supply side" economics, modest increases in those sectors will not make up for sharp drops in demand for imported goods or domestic spending.

Opebo has it right that right now we need quantitative easing and government spending that puts money into the hands of the unemployed and lower and middle classes whose incomes are being eaten up by necessities in order to spur economic growth, which then can self-perpetuate once the "engine" has been primed.

[phk]

Deflation is coming because of inadequate government spending, inadequate quantitative easing, and inadequate credit growth.

The Middle Easterners have that one figured out.

[memphis]

Pretty much what owners want. Lets them own more.

[○∙◄☻¥tπ[╪AV┼cVê└]

If our country had common sense, they'd see deflation and high unemployment and do another stimulus. Of course we don't have common sense.

[phk]

If our country had common sense, they'd see deflation and high unemployment and do another stimulus. Of course we don't have common sense.

There won't be anymore deflation thanks to Libya.

[Roemerista]

About Time.

[opebo]

If our country had common sense, they'd see deflation and high unemployment and do another stimulus. Of course we don't have common sense.

There won't be anymore deflation thanks to Libya.

Actually no, there will be deflation even with rising oil prices, phknrocket.  We will quite likely see either slowly rising oil prices (the norm) or rapidly rising oil prices (if we have shocks/supply dislocations), due to demand in non-deflating places such as China, India, and other Asian countries.  At the same time the US will continue deflating.  Its like Japan - it has deflated throughout periods of some inflation in other countries and periods of generalized commodity price increase.  There is no reason to expect a moribund place to automatically cease deflating just because some other part of the world or one or two commodities start to inflate.

[True Federalist (진정한 연방 주의자)]

There is no reason to expect a moribund place to automatically cease deflating just because some other part of the world or one or two commodities start to inflate.

While true in the abstract, you are ignoring the importance of oil in the modern economy.  Indeed, a sharp and long-lasting rise in the price of oil is the most likely trigger for stagflation, just as it was back in the 1970s, and ironically enough this is because of the deflationary pressure it will put on other goods and services.

Taken as a whole, consumers will be experiencing inflation and thereby want to cut back on purchases because of lower purchasing power.  However, the lack of inflation in other goods means that the stimulative effect of inflation will not be present there, since there will be no expectation that if you wait, then things will cost more later.  Purposefully trying to inflate under those conditions will not tend to inflate the broad economy and thereby raise the level of employment as it normally would.  What it will do is pour fuel on those narrow sectors of the economy that are already inflating.

Japan tried extensive amounts of government stimulus during its lost decade, and to no effect except racking up government debt.  Just as Japan was then, we are in the middle of an economy that is adjusting to changes in its makeup following the collapse of a real estate bubble. The major difference is that CDOs spread our pain world-wide.  We neither can reinflate that bubble, nor should we.

[opebo]

...Just as Japan was then, we are in the middle of an economy that is adjusting to changes in its makeup following the collapse of a real estate bubble. The major difference is that CDOs spread our pain world-wide.  We neither can reinflate that bubble, nor should we.

But the economy is not 'ajusting' - it is simply operating as a lower level (and arguably a declining one), just as it did during the Depression, and just as the Japanese economy has done for decades.  This doens't 'adust' away conveniently - it is quite likely permanent without appropriate government actions (such as the takeover of the economy during WWII).