Inflation v Deflation - next 36 months

[topcropper]

just need to see some deflation in consumer prices now. unfortunately there is no sign of it.

It's going to take a long time. I'd imagine a company like woolworths would even benefit from it. They will be getting cheaper raw food and keeping the prices they sell at the same and increasing the profit margins.

In the case of fertilizer, when urea prices were $1000 per tonne, incitec thought the prices were going to $2000 per tonne, so they imported heaps and filled every shed they had with the over priced stuff. Now farmers can't possibly make money with urea at $1000 per tonne, and grain at current low levels so farmers have stopped buying fertilizer. World urea prices have since halved. Incitec have said that we won't get cheap urea till we buy all the expensive stuff and empty the sheds.

Incitec will get screwed here, farmers are not buying, they [fertilizer companies] have sheds full of overpriced fertilizer, and farmers everywhere are working out how we can import urea at half the price for next season. We have 5 months to work out how to do it for winter planting, and it will happen. The fertilizer companies made a killing and rorted the hell out of us on the way up, and now they can just share the pain on the way down. Fares fare.

http://www.abc.net.au/rural/news/content/200812/s2435191.htm



This sort of stuff would be happening in a lot of business's.

See ya's.

 

[chilliaa]

Thats a really great post topcropper.
There is no substitute for hearing whats going on at the front lines.
Thanks again for the post.

 

[Ausprop]

I think we will have an inflation problem before we see retail prices dropping

 

[BoatBoy]

http://www.abc.net.au/rural/news/content/200812/s2435191.htm



This sort of stuff would be happening in a lot of business's.

See ya's.

Good post TC

The great urea bubble of 2008

Dave

 

[keithj]

AMP has a recent 2 page summary of deflationary risks here

Key points

• Global inflation is falling rapidly due to falling oil prices and the economic slump. Next year inflation may turn into deflation, ie, generalised price falls.
• Sustained and uncontrolled deflation would be bad news as it would accentuate problems associated with high debt levels and falling asset prices.
• However, the US Federal Reserve seems to be well aware of the risks and has indicated it will do everything possible to head off a deflationary spiral. It is already embarking on quantitative easing (or “printing money”).

....... big snip ........

Concluding comments
With commodity prices, notably the oil price, falling sharply and most countries now starting to experience excess capacity, a period of deflation or at least very low inflation is likely in 2009. Fortunately, the risk of a sustained bout of deflation as in the 1930s or in Japan in recent times is modest. The US Federal Reserve, along with the RBA & most other central banks, are well aware of the risks and appear to be doing whatever is necessary to avoid it.

 

[Rockstar]

Is there public information anywhere that shows if and how much money a country is printing?

 

[GreatPig]

Bernanke laid out the Fed’s deflation fighting tool kit which included committing to hold the key Fed Funds rate at zero for some time, buying private sector debt and “printing money” to buy government bonds.

<snip>

the US Federal Reserve seems to be well aware of the risks and has indicated it will do everything possible to head off a deflationary spiral. It is already embarking on quantitative easing (or “printing money”)

Printing money may not work, no matter how much Ben drops from his helicoptor. From "The Dollar Crisis" by Richard Duncan:

an aggressive monetary response would do more harm than good. Excessive monetary expansion, in the form of international dollar liquidity, created the global economic bubble in the first place. Additional aggressive expansion of the global money supply would succeed, at best, only in creating a new round of asset price bubbles that would ultimately implode in an even more terrible economic collapse.

Monetary policy works through credit expansion. When the government wishes to expand the money supply, it buys assets (such as government bonds) from the banks, increasing their liquidity. In theory, the banks, in turn, lend more to businesses, which are expected to increase their investment and hire more workers, thereby eventually stimulating consumption and the economy overall. In a post-bubble economic environment, characterized by excess capacity, bankrupt corporations, and overly indebted consumers, monetary policy does not work. Although the liquidity position of the banks is improved by the government's actions, there are neither a sufficient number of creditworthy borrowers to lend to (given the very large number of debtors unable to repay their existing debts), nor a sufficient number of clients who want to borrow, due to the lack of money-making investment opportunities left in the glutted marketplace. Consequently, the increased money supply never reaches the consumers and personal consumption does not revive.

An interview with Richard Duncan just after the book came out (I can't see any date on the article, but the book was first published in 2003). From the end of that article:

the two principle economic policy tools of the 20th Century, Monetarism and Keynesian fiscal stimulus, are not up to the task at hand. This crisis has been caused by an explosion of the global money supply. It cannot be solved by simply printing more money—as many important and powerful people would have you believe.

GP

 

[boz]

Is there public information anywhere that shows if and how much money a country is printing?

yes, it is good to check it regulary;
here is the RBA data
I check more often the data from the federal reserve that gets updataed quite often at this link. You can see how much M1 has increased in the last few months compare earlier in the year. You have to consider the speed of money that has slow down a lot and people just hold the money longer in their wallet then they are use to these days.