Inflation v Deflation - next 36 months
- Thread starter boomtown
- Start date
if the RBA is successful in managing the economy i feel the following outcomes will apply
- Cash rate of 4%
- Inflation goes up
- Recession is avoided but hyper inflation becomes an issue.
Globally most economies are pushing to be inflationary rather then going through a recession, and if this is the case debunking currency is a high possibility, including hyper inflation.
interesting times.
- Cash rate of 4%
- Inflation goes up
- Recession is avoided but hyper inflation becomes an issue.
Globally most economies are pushing to be inflationary rather then going through a recession, and if this is the case debunking currency is a high possibility, including hyper inflation.
interesting times.
%%%%%%%%%%%%%%%%%
Dear Stumunro,
1. I do not think that globally most economies are pushing to be inflationary rather than going through an Recession.
2. Both New Zealand and Singapore are now in Recession already.
3. However, what I can agree with you is that while most of the economies in the Western world are heading towards a Recession, they are also trying their best to avoid falling into a deep and prolonged Recession.
4. One way to avoid Recession without incurring a subsequent hyperinflation scenario is for the country concerned to allow its National Currency to weaken in a manner such that their exports can still be competitively traded and its local domestic over-consumption of goods and servcies curbed.
5. The other factor to consider is how the economies in the Brazil, Russia, India and China (BRIC) as well as the other newly emerging economies are likely to perform in the near future.
6. The world is unlikely to remain America-driven (or/and likely more recently Europe-driven) for long. BRIC will become an increasingly an important world economy factor to consider.
7. For your further comments and discussion, please.
8. Thank you.
regards,
Kenneth KOH
Dear Boomtown,
1. Why totally rule out the possibility of the Australian Economy achieving a soft landing over the next 24-36 months period, in the first place?
2. Thanks.
regards,
Kenneth KOH
1. Why totally rule out the possibility of the Australian Economy achieving a soft landing over the next 24-36 months period, in the first place?
2. Thanks.
regards,
Kenneth KOH
I don't understand the question. By "the Australian economy", I presume you are talking about Gross Domestic Product? Or GDI or GDE? None of these can realistically hyper-inflate. I think the economy will contract over the next 36 months. Why? Because consumption will contract due to less credit-spending.
We currently spend around 25% more than we earn. Even if this falls back to 15% to 20% more than we earn, the economy will already have begun contracting. I expect it to fall back further than that.
Ken and Max - I have revised my question slightly in light of your comments.
I see the following:
The drop in the AUD is going to trigger a massive CPI increase as the cost of the imported goods in the notional basket of goods skyrockets. This will be hidden for a few months though as existing retailers try to stimulate demand by flogging goods at firesale prices.
The US treasury is printing dollars like mad. I would not think that the the current strength of the US dollar is sustainable except that the wealth of many (like the OPEC states) is denominated in USD. If the USD falls so do the wealthy all around the world and they will fight to support the USD.
I see the following:
The drop in the AUD is going to trigger a massive CPI increase as the cost of the imported goods in the notional basket of goods skyrockets. This will be hidden for a few months though as existing retailers try to stimulate demand by flogging goods at firesale prices.
The US treasury is printing dollars like mad. I would not think that the the current strength of the US dollar is sustainable except that the wealth of many (like the OPEC states) is denominated in USD. If the USD falls so do the wealthy all around the world and they will fight to support the USD.
I tend to agree with Max on this issue.
We have just had or still having a stock market crash thats caused many retirees and soon to be retirees to lose hundreds of thoudands of dollars which possibly would have been spent on cars, travel, boats, campers and other luxury goods. This money will now be used to shelter, feed and clothe and not be spent as freely as the last few years.
We have banks now cracking down on credit, perhaps they are starting to see all this credit card debt a cost they might have to bear ie defaults. People are going to really start to hurt financially with the upcomming job losses from business doing it tougher and reducing overheads which is so often staff (and Daz isn't helping with these exorbitant leases he is putting together)
I just cant see inflation skyrocketing as there wont be the dollars out there to support it but a small increase is possible but then again what would I know
We have just had or still having a stock market crash thats caused many retirees and soon to be retirees to lose hundreds of thoudands of dollars which possibly would have been spent on cars, travel, boats, campers and other luxury goods. This money will now be used to shelter, feed and clothe and not be spent as freely as the last few years.
We have banks now cracking down on credit, perhaps they are starting to see all this credit card debt a cost they might have to bear ie defaults. People are going to really start to hurt financially with the upcomming job losses from business doing it tougher and reducing overheads which is so often staff (and Daz isn't helping with these exorbitant leases he is putting together
)I just cant see inflation skyrocketing as there wont be the dollars out there to support it but a small increase is possible but then again what would I know
Answer, both.
Perhaps I should try to explain.
Initially deflation as economy rockets towards/into recession. Firesale prices for many things because businesses need the cash and consumers rein in spending.
Macro response is lower and lower interest rates plus increased spending. Eventually the "cheap" things will have washed through the system with newer imports being much more expensive. Government will relax wage rise constraints as not doing so could risk higher unemployment, that is already high due to recession (ie think forward 6 months to a year from now).
The likeness to the mid '70's where inflation was 15% pa, yet unemployment high will become apparent. During that time we had negative real interest rates. The IRs were around 9%, but getting the loan was difficult.
If cash is king now, then in the above scenario it wont be for long.
bye
Perhaps I should try to explain.
Initially deflation as economy rockets towards/into recession. Firesale prices for many things because businesses need the cash and consumers rein in spending.
Macro response is lower and lower interest rates plus increased spending. Eventually the "cheap" things will have washed through the system with newer imports being much more expensive. Government will relax wage rise constraints as not doing so could risk higher unemployment, that is already high due to recession (ie think forward 6 months to a year from now).
The likeness to the mid '70's where inflation was 15% pa, yet unemployment high will become apparent. During that time we had negative real interest rates. The IRs were around 9%, but getting the loan was difficult.
If cash is king now, then in the above scenario it wont be for long.
bye
Hi BO
Where do you think the trillions being pumped into the system will go then?
Cheers
Shane
Shane,
Where is the trillions coming from? Governments don't just have it laying around in spare cash.
Kevin Rudd isn't pumping anything into the Australian system as yet, all that money is supposedly propping up the US economy. I think if it was a genuine fix their share market would not be tanking. It would be marvellous to have that little crystal ball wouldn't it.
From the US federal printing press.
Lower interest rates means families have more of a disposable income.
They'll go some way to compensating "the system" for the tens of trillions that have evaporated of late.
BT, correct, the feds will kick on their printing presses, and inject money into the currency system.
Which they are going to have to spend on food shelter and transport all of which will increase in line with inflation.
I agree with BillL's comment re inflation and having money in the bank. I remember back to the 70's and there was literally no re4ason to save (personally) as by the time you had saved the cost of the item saved for had gone up. Think property boom where people are rushing to buy just to beat the increasing price then think just about everything you buy - that is what it can be like.
Cheers
small deflation first for 3 month, then followed by inflation , then hyperinflation.
US is going towards a hyperinflation...trying to massively depreciate its currency (of course after the current de-leveraging caused spike).... and no other countries in the world can afford not following on (deliberately depreciating as well).. so a global hyperinflation.
You may think inflation is good for people who hold hard assets like property.
However, property price is always the slowest to react to an inflation (after food, wage and interest rate hike).
So before you enjoy your hard assets in hyperinflation, your loan will already have grown to an unsustainable high with a >100% liability/assets ratio (you own bank more than the asset is worth)..
US is going towards a hyperinflation...trying to massively depreciate its currency (of course after the current de-leveraging caused spike).... and no other countries in the world can afford not following on (deliberately depreciating as well).. so a global hyperinflation.
You may think inflation is good for people who hold hard assets like property.
However, property price is always the slowest to react to an inflation (after food, wage and interest rate hike).
So before you enjoy your hard assets in hyperinflation, your loan will already have grown to an unsustainable high with a >100% liability/assets ratio (you own bank more than the asset is worth)..
Exactly!! And I fail to see how this is going to save Australias economic crises which is growing by the day!
People are going to be doing it tough out there if there is not some change in money management by individuals as well as business.
what do you see as the crisis? we are still near full employment and the economy is growing. now IRs are on the down - the only crisis I can see is inflation or hyper inflation
The US printing press *should* collapse the USD which will make disney land affordabel again, in the mean time it looks like its Tasmania for next years break
With hyperinflation the loan deflates much faster than IRs go up. Furthermore Im 100% fixed.
