All that Spending and Still Deflation
I have intended to visit deflation again after core CPI showed deflation for the first time since 1982. Mish summaries it nicely.
I went back and looked at some of my previous musings on deflation and it is a topic that I have discussed fairly often:Battle of Economists - Inflation or Deflation
This one really summarizes why I left the market and why asset protection became much more important to me then trying to chase yields. This was the period that I got out of a bubbled home and bubbled stocks. It enabled me to buy another home mortgage-free with a mortgage helper, aka, a rentable suite. My rental income covers my share of utilities, insurance, and maintenance, so basically I live rent and utility-free right now. What I am saving in expenses I guess works out to about 5-6% on the money that is no longer in the bank, but is now in a house. Inflation or deflation?
Deflation seemed apparent to me fairly early because leverage massively increased the money supply, far more then any printing program can keep up with. Something that I have said before, but I am not referencing here, I think the banking system would have collapsed with out the bailout money. Losses simply completely wiped out all reserves. It seems the bailout moved the losses off the bank balance sheets and kept the banks capitalized so we can all still go to the bank and take money out. Essentially when the banks lose all that money it is our deposits they have lost and the losses were so big there was no way that insurance would have covered them.Betting on Japan Style Deflation
This post from over two years ago I went with the premise that mortgage garbage would continue to cause problems for banks into 2010. The mortgage modifications have actually delayed some of the problems so whereas two years ago I was thinking the banks would have had to deal with all this mortgage stuff by this year sometime, well, I think the accountability has been moved out at least another 2-3 years. And the commercial real estate is also going to hit hard over the next few years. Banks have gone back to prudent lending standards and their are few borrowers that actually meet reasonable lending standards so credit is contacting and it will continue to contract for some time I imagine.Deflation Conveyor Belt
This one explains why I thought deflation even if money is printed. I really do not write about financial issues like I did two years ago. I also touched on the issue of priviledge of the US dollar and how that ties up cash, so the cost of goods have not increased to what the money supply has become. You'd think massive inflation right away if that money all of a sudden returned to economy rather then sitting in safes and bank accounts from around the world. But, the credit expansion was so massive, even this would be absorbed.Deflation?
More on the contraction of credit.Inflation - deflation and debt
This one I touch on responsible lending standards and in a way I show how low increase rates cause massive increases in monetary supply. I also explain how big of bs it is that low interest rates are good for the consumer. They are only good for the consumer if costs remain constant and reasonable lending standards are applied.
It also shows how low interest rates suck the economy dry for decades. If you borrow to 30% of your income with high rates even a small increase in payments results in huge savings. Consumers are powerless to reduce their debt burden at low rates and with 30 year mortgages and low inflation, well that is 30 years of struggling. Income never rises enough to have the mortgage burden become manageable and 30% of income going to shelter is actually challenging for a household budget. With higher inflation that wages keep up with the percent of household income going to mortgage declines and families can adjust to the increasing costs of raising a family. That so isn't going to happen going forward.Deflation of Wages
With such high unemployment, wages are going down. This is one example.Credit Contration = Deflation
More on how credit contraction causes deflation. Deflation...
Hmmmm.... I was going to get Prechter's book... I never did.. I need to add more of this guy's stuff to my reading list. I was reading something awesome of his last week.Still in Deflation Camp
Well, I still think the market rally was not because of good fundamental analysis, but people go on past experience without really looking at how things are different. There have been a few that have lost their shirts being early with the correct analysis. I do not see fundamentals to support the market and I do not think my analysis is wrong it is just early in terms of understanding what is happening ahead of the crowd...