Inflation or Deflation? That is the Question

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No time for much reckoning today.

Dow up 20. Gold up $20.

Associated Press reports:

NEW YORK (AP) – Stocks posted small gains Thursday after Federal Reserve chairman Ben Bernanke said the central bank will stick to its efforts to spur the economy.

In a speech at the National Press Club, Bernanke said that the Fed expects the economy to improve this year and inflation to remain low despite the jump in commodity prices.

“Chairman Bernanke basically indicated in his speech that he considers unemployment to be the bigger problem than inflation and that the Fed will continue to focus on that,” said Doug Roberts, chief market strategist at Channel Capital Research.

The Federal Reserve has a plan to buy $600 billion in bonds, a tactic known as quantitative easing, aimed at spurring lending and making stock ownership more attractive. Some economists had worried that the Fed could end its bond purchases earlier than anticipated.

Stocks had fallen for the most of the day as concerns over violent protests in Egypt weighed against better-than-expected economic news in the US.

Meanwhile, inflation in primary, international auction priced goods is beginning to work its way into consumer prices everywhere. Bloomberg has that story:

India’s food inflation accelerated to a one-month high and services growth quickened, bolstering the case for more interest-rate increases.

An index measuring wholesale prices of agricultural products rose 17.05 percent in the week ended Jan. 22, the commerce ministry said in a statement in New Delhi today. The Purchasing Managers’ Index rose to 58.1 in January from 57.7 in December, according to HSBC Holdings Plc and Markit Economics. A reading above 50 indicates an expansion.

Asian economies from South Korea to China and India are facing inflation pressures, prompting the International Monetary Fund Managing Director Dominique Strauss-Kahn to say this week that central banks in the region need to raise borrowing costs further. The Reserve Bank of India on Jan. 25 boosted rates for the seventh time in a year and signaled more increases.

Ben Bernanke is talking nonsense. Well…nonsense of a particular sort. He wants to inflate the economy. His line of talk explains why…

Bloomberg:

Federal Reserve Chairman Ben S. Bernanke said the US needs to see faster job growth for a sufficient time before policy makers can be assured the economic recovery has taken hold.

“With output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level,” Bernanke said today in a speech at the National Press Club in Washington. “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

Bernanke said economic growth will pick up this year and the Fed’s purchases of $600 billion in Treasuries are “providing significant support to job creation and the economy.” At the same time, his emphasis on labor-market weakness means the central bank is likely to leave stimulus in place for a while, said Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York.

“The Fed is still in a very growth-supportive policy stance,” said Feroli, a former Fed researcher. “I don’t think they make any premature feints toward heading to the exit.”

Bernanke still regards the threat of deflation as greater than the threat of inflation. Or, he says he does.

We judge them about equal and figure they’ll both hit us. Hard.

And more thoughts…

Did we say we had more thoughts? We don’t have time for more thoughts. Not today. The thoughts will have to wait until next week.

Regards,

Bill Bonner.
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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63 Comments on "Inflation or Deflation? That is the Question"

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Stillgotshoeson
Guest

“We judge them about equal and figure they’ll both hit us. Hard.”

Has been my view for some time that both are going to occur, I still favour inflation first over deflation, we have been seeing inflation rearing it’s head in many countries in the later half of 2010 and into 2011.. How high inflation gets will vary from country to country but ultimately will lead to defaltion as it all falls in a hole.. a very deep hole that will take many years to get out of.

Richo (the Second)
Guest

Many things are already in a deflation price trend – Melbourne housing prices, second hand cars – which puts pressure on new cars. Anything that an ASX 50 company sells – clothing, household goods, phone plans, prepared groceries etc are the subject of constant price pressure as they compete for consumers dollars.

I suppose fuel and raw fruit & vegetables are inflationary at the moment.

Stillgotshoeson
Guest
House prices are in decline due to affordability being breached.. Rising utility prices, rising interest rates, rising food and fuel prices and higher taxes/charges and levies have taken spare capacity to pay. Inflation in day to day items causes deflation on big ticket items. Discretionary spending is on the wane, Look at David Jones, Harvey Norman and Myer.. all revised profit expectations downwards.. Exception is JB Hifi and I would expect them to fall short of calendar year profit estimate as discretionary spending tightens even more. Later stage of 2011 and early 2012 is probably going to see a rise… Read more »
Biker Pete
Guest

East coast? Who knows?
West coast? Wages growth, employment growth, rising rents.

“We are approaching end games”(?)
Cartoon figure in sackcloth and ashes, carrying sign ‘The End is Nigh’
comes to mind.

I think there were quite a few prophesies you made, still to be fulfilled,
before the sky fell, weren’t there, Shoes? ;)

Biker
Guest

Jeeeez… finally got _one_ through!
Had almost given up trying… . :D

Vince L
Guest

Maybe house prices have reached the point where they are actually putting a drag on the economy or at least that is what is suggested in this article: http://www.shareswatch.com.au/blog/investing/are-rising-australian-home-prices-good-the-economy/

As for gold, the glory days seem over for now. Oil looks better.

Biker Pete
Guest

Shoes: “Later stage of 2011 and early 2012 is probably going to see a rise in unemployed figures…”

Probably? Now that’s wishy-washy. Far prefer your 1st November 2010 prophecies, where you loudly assert seven _dire_ outcomes for 2011.
Where’s the Old Shoes, the fire’n’brimstone lad heralding total
Armageddon for 2011? ;)

Ned S
Guest
I see your temporary indisposition hasn’t immensely improved your scores BP? So much for absence making the heart grow fonder hey! :D :D :D I’ve been (and continue) stripping back about 40 m2 of ceiling – Kitchen/Dining/Living/Hall – Silly bloody letting agent said “Are you going to ‘redo’ the paint on the dining room ceiling?” Inestimably sillier owner said “Um, Ah, Yeah, Maybe …. OK.” Bloody old calcamite paint just possibly? Either way I still haven’t got to the point where it stops stripping off. Ah, the joys of ‘home/housing’ ownership! :) PS: Clever people with lots of money just… Read more »
Not Fooled By property Spruikers Hype
Guest
Not Fooled By property Spruikers Hype

Coward Pete … you are back …thought you had crawled under a rock for good after you lost the debate about todays 7% interest rate being equal to a 22.5% rate in 1990 … Called me a Liar about that then when proven wrong could not find the courage to say sorry that you got it so wrong?

Not Fooled By property Spruikers Hype
Guest
Not Fooled By property Spruikers Hype
Ned or Shoes your thoughts on this scenario question? To help settle a discussion / argument I have a investment property worth $1 million & that has a mortgage that can be Full Offset for say also $1 million against this property. I am paying 7% interest PA on funds drawn down on the loan The Property is rented out at a 4% yield after all costs. I then deposit $1 million dollars against the mortgage on this property for say 1 year. Leaving a balance of ZERO & paying ZERO interest for 1 year. The $1 million dollars I… Read more »
Ned S
Guest

As we used to say in the old days when nice little Australian kiddies didn’t regularly say “Eff” n “Cee” Not Fooled, have you found that link on PerthNow where Biker claims to be a builder/developer? Which question can be pretty much translated back to: “Rack off hairy legs!” :)

Or are you trying to tell me that nothing about Oz, has, could, should, ever, or will change??? :D

Ned S
Guest

Go away you dope – You are interfering with my thought processes re drawing up some mods to one of my houses. And I’d really like to be in action quite early tomorrow re continuing working towards putting same in place over the next decade or so.

Ned S
Guest

Not Fooled – I’m a bear, but every time I read your stuff I am seriously forced to consider the probability that I could WELL be wrong! Why do you spray out such unending drivel? It doesn’t make me feel at all confident in my position to be aligned with the likes of you.

Things change cuz. The trick is to determine how much and when. With your fixation on equating 22% many years ago to 7% now being a total nonsense. IMO.

nv
Guest

Inflation or Deflation?

Both is the correct answer. Throw in depopulation for the balance.

http://cecaust.com.au/main.asp?sub=releases&id=2011_02_03_Windsor.html

Not Fooled By property Spruikers Hype
Guest
Not Fooled By property Spruikers Hype
Ha Ha Ned Clearly the question was too taxing for you to comprehend? Because you did not grasp the fact that previously I was stating that a 7% interest today was equal to a 22.5% rate in 1990. I was equating 17% many years ago to 7% today but somehow you put 22% to it? It take it you dont have strong comprehension skills as you also failed to pick up on Coward Pete describing his Builder & Developer activity as a ” HOBBY ” of his? He stated this at least 5 times here on DRA but yet you… Read more »
Biker Pete
Guest
Ahhh, the old ‘biting your own neck’ quip. Used scores of times, after he abandoned scores of ‘tick-tick-ticks’, hundreds of ‘BOOMS’ and countless ‘Kerplunks’! This is the property expert who told us he ‘lives in’ a house purchased in 2002 for $250K, which now (unimproved) is worth $750K eight years later. Asked whether he OWNS or RENTS this house, he has declined to respond 24 times. (We’re advised by an observant soul that he rents it from his employer. He still declines to answer the query… . ;) ) So here’s the picture: Our Property Expert, N Fool Punter of… Read more »
Ned S
Guest

22% ? 17% ? I don’t exactly bother reading your stuff in any detail (or memorising it) in view to trying to comprehend it Not Fooled. As I very confidently take it as a given that it’s a nonsense nowadays. :)

“Hobby” – Well there you have it – Despite you contending that Biker is a builder/developer, he isn’t hey!

PS: I’ve learned a lot from him over the years. But I’m real sure I’ll never learn anything from you. And gawd help those who do.

Biker
Guest
Ned: “I see your temporary indisposition hasn’t immensely improved your scores BP? So much for absence making the heart grow fonder hey! :D ” You may recall Greg’s comment on this, Ned: “Biker Pete, if you get a good rating on DR then perhaps you know you are doing something wrong ;) ” Greg Atkinson, DRA, 9 October 2009. Ned: “I’ve been (and continue) stripping back about 40 m2 of ceiling – Kitchen/Dining/Living/Hall – Silly bloody letting agent said “Are you going to ‘redo’ the paint on the dining room ceiling?” Inestimably sillier owner said “Um, Ah, Yeah, Maybe ….… Read more »
Ned S
Guest

“$255K profit on this one when listed” – Good for you Biker. The tax you pay will help Ms Gillard pay Not Fooled some rental assistance money just maybe? ;)

Back to the ceiling – Say g’day to Tamara for me! :D

Stillgotshoeson
Guest
Biker
Guest

Fella who declined to sell his house to you must be _kicking_ himself, Shoes.
Jeeeez, you find many more of these little snippets than anyone else here!

Here’s a great idea: Why not copy-and-paste them, over-and-over again(?)
We’re advised that if you do that, dross can be magically transformed to gold, lies-become-truth, even foolish actions seem wise.

Works for the Enfooled Punter of ‘Mindarie’, anyway… :D

Ned S
Guest

Bill Bonner: “Inflation or Deflation?”
Shoes: “The news gets better and better for property investors…..” (being a tongue in cheek comment)

Rents still sound potentially attractive to me as income in either an inflationary or deflationary scenario? Especially if one doesn’t have a mortgage.

Not Fooled By property Spruikers Hype
Guest
Not Fooled By property Spruikers Hype
Perma Property Bull Coward Pete…. ” Especially if one doesn’t have a mortgage??? ” If you dont have a Mortgage it means you have your own cold hard cash in a investment yielding less than …. 3-4% after tax … brilliant !!!…. FYI: Landlords holding costs are up $175+ PW in the last 18 months with interest rate rises / house insurance / rates / water rates / maintenance / management fees etc etc all rising …. yet Landlords were only able to increase rents by less than $20 – $35 pw (according to REIWA )…. Now the ATO reports… Read more »
Biker Pete
Guest
” (being a tongue in cheek comment)” Let’s call it for what it is. Sarcasm. Lowest form of wit… ! (Mine dew, my crack about Shoes’ failed buy wasn’t many millimetres higher. Just couldn’t resist responding in kind… .) ;) “Rents still sound potentially attractive to me as income in either an inflationary or deflationary scenario? Especially if one doesn’t have a mortgage.” 54 more daze, Ned. No mortgages!!~ :D “The tax you pay will help Ms Gillard…” Very little tax, factoring in generous CGT provisions… and our capacity to roll anything left straight into Super. Did we actually get… Read more »
Biker
Guest

” Especially if one doesn’t have a mortgage??? ”
Ned’s comment, you DH. :D

All this crap from a tyro who told you he rented a house eight years… a house he told us appreciated half-a-mil between 2002 – 2010. Had he _bought_ it, he’d have a CGT-free gain of $500K + eight years’ rent! Unbelievable, but it may be the first straight thing he has ever said!

Folks, if you believe the Not Fooled Punter of ‘Mindarie knows realty, _please_ take notes and do _exactly_ what he says to do. He knows jacksh*t.
It’s your money… . :D

Ned S
Guest
Ned S replying to your comment on his comment Not Fooled: “you have your own cold hard cash in a investment yielding less than …. 3-4% after tax … brilliant !!!….” Yep, one is a house I bought in 1995 for $83K that is now worth about $450K minimum I’d say. Won’t be selling it as it would trigger LOTS of CGT. Two is my own humble hovel – Won’t be selling that either as I don’t like paying rent. Three is a house in the name of my SMSF. Bought in 2008. Better there than in stocks hey! :D… Read more »
Ned S
Guest

“Three is a house in the name of my SMSF. Bought in 2008. Better there than in stocks hey”

In fairness, bank interest (in Oz!!!) has probably performed about as well as that house I bought in the name of my SMSF in the first half of 2008. But I’ve got LOTS of cash in my investment mix anyway. And am currently living mostly off bank interest. Though Mr Buffett reckons cash is a poor long term investment I gather?

So what’s your preferred investment mix/strategy at this time Not Fooled?

Ned S
Guest

Biker: “54 more daze, Ned. No mortgages!!” – Good news mate! :D

2.75 more yeerz I can access a TTR! Not that I’m counting hey!!! ;)

Biker
Guest

About time we heard what N Fool Punter’s game plan is, Ned! ;)

Over on PerthNow, he has confessed losing in property AND shares, so it’s probably time he laid out his manifesto!~ My view? Other than thinking he can *POP* the Perth property market… and maybe get back into a house 40% off… there IS no plan whatsoever.

Happy to be proven wrong, N Fool. Lay out _your_ formula to the road to riches. As Ned recommends: “Excrete or exit the receptacle…” :D

Biker Pete
Guest

“2.75 more yeerz I can access a TTR! Not that I’m counting hey!!! ;) ”

Yep… and in 54 more daze, I lose mine!~

There are compensations! :D

Stillgotshoeson
Guest
Comment by Ned S on 8 February 2011: Bill Bonner: “Inflation or Deflation?” Shoes: “The news gets better and better for property investors…..” (being a tongue in cheek comment) Rents still sound potentially attractive to me as income in either an inflationary or deflationary scenario? Especially if one doesn’t have a mortgage. Have said all along it is the highly leveraged that are in the most danger.. Recent purchasers maxed out on FHBG and those that have raided the equity in their homes over the lat few years to by stuff that has depreciated or become memories. Is why I… Read more »
Ned S
Guest
Shoes: “raided the equity in their homes over the lat few years” Some have been doing that for a decade (or longer?) … Not an especially reliable retirement plan I’d say!?! “I have had a good year… more than double that so far and it’s only February” And good for you too Shoes! Ms Gillard really does reckon she needs all the taxes she can collect!!! It’s one advantage to being ‘poor’ – I don’t have to spend as much time thinking about how to minimise tax as when I wasn’t! :D Biker: “N Fool. Lay out _your_ formula to… Read more »
Not Fooled By property Spruikers Hype
Guest
Not Fooled By property Spruikers Hype

Coward Pete … You truly are a idiot in search of a village …. keep Biting the Back of Your Neck fool!!

Biker
Guest
“I have had a good year… more than double that so far and it’s only February :)” Yes, $144K in 39 days is remarkable. Keep that up and you’ll make around $1.6 mil this year. Time to quit your day job, retire, travel and counsel others in finance, Shoes. Your gift for accumulating wealth may rival your ability in crystal-ball gazing. Even more remarkable than these fantastic monthly sums you attract would be your success in predicting the Big Picture for Australia 2011. It will be far more impressive, in my view, if you are right in your seven financial… Read more »
Biker
Guest

“Coward Pete … You truly are a idiot in search of a village …. keep Biting the Back of Your Neck fool!!”

Yep, that sounds like a sound financial plan to me.
I see N Fool has discovered subtlety. :D

Ned S
Guest

I accept that you couldn’t find the PerthNow link where Biker said he’s a builder/developer Not Fooled. Hey, anyone can get confused once. But what’s your personal investment strategy/mix? And retirement plan???

Blokes like Biker and Shoes and Lachlan and I who’ve blogged on this site for a while now at least know those basics about each other. Cummon – Give us the goods … What’s your current investment strategy/mix/retirement plan??? :D :D :D

Stillgotshoeson
Guest

Sarcasm may be the lowest form of wit biker, however if wit was sh!t you would be constipated…

Just for you.. and only you because your stupid I will explain in detail..

This FINANCIAL year, because I keep failing to remember your ability to think outside the box.. Your dogmatic ways make it irritating to even bother communicating with you..

54 days? Hopefully you will die of some terrible disease before then and your kids get everything.

Ned S
Guest

“Hopefully you will die of some terrible disease before then and your kids get everything”

Could of sworn he’d ‘promised’ to leave it to some Ghanaian girls?

Enough of this – It’s nap time! :D

Stillgotshoeson
Guest

Don’t really care whom receives it.. Just the him dying is enough to satisfy me..
Slow and painful Liver cancer would be good, an aneurysm is no good, too quick for my liking..

Ned S
Guest

You’re a hard man Shoes. But it was a funny comment so I gave it top points regardless! :)

Stillgotshoeson
Guest

Comment by Ned S on 9 February 2011:

You’re a hard man Shoes. But it was a funny comment so I gave it top points regardless!

Many a true word is said in jest… ;)
No jest intended though…

Biker
Guest

I accept that you were very likely drunk… and very _worried_… when you made the comment, Shoes.

It’s just as likely you were very drunk when you made your predictions, too.

You’re fond of ‘highlighting’ the differences between us. Your Irish curse certainly qualifies as a major difference!~ It communicates great anxiety, unrelieved stress… and an intensity of anger which predicts an earlier departure than mine.

As Morrison commented “No-one here gets out alive.”
If you imagine you’re _really_ any different, good luck with that!~ ;)

Biker Pete
Guest

Will Biker Pete survive Shoes’ Curse….
or will we have to call a hearse?
Stay tuned for Shoes’ next angry porker;
as curses go, it is a Corker!
Mrs Biker

Stillgotshoeson
Guest
Comment by Biker on 9 February 2011: I accept that you were very likely drunk… and very _worried_… when you made the comment, Shoes. I assure I was sober… I assure I meant what I said, I asssure I am not worried. It is not me selling of assets to pay out a leveraged position. I think you an arrogant, evil and selfish man and do really wish upon you a slow painful terminal disease. It’s just as likely you were very drunk when you made your predictions, too. I was sober when I posted my predictions for 2011, if… Read more »
Stillgotshoeson
Guest

Comment by Biker Pete on 9 February 2011:

Will Biker Pete survive Shoes’ Curse….

With any Irish luck… no, he will not.

Pog Mo Hon…. and sure as my rectum is pointing to the ground as I type this you are going to google this and post here… HA Shoes you have spelt it wrong… I have spelt how best you could pronounce it.. I doubt you could get the phlegm clearing sound in the true form..

Biker
Guest

OK, some responses to the vitriol. You’re better to cough it up…
that stuff upsets your digestive tract. Bile from a Bear?
Who’d expect it?!~ ;)

Shoes: “I think you an arrogant, evil and selfish man and do really wish upon you a slow painful terminal disease.”

Ughhh… Look at that ugly green mess in your basin. Any greener and you’d photosynthesise. (More to come… .) ;)

Biker
Guest
“Will Biker Pete survive Shoes’ Curse…. With any Irish luck… no, he will not.” During my long and happy life, I’ve learned that Karma is a dish best served cold. Karma has a sense of humour, in fact. ;) I _do_ understand that my imminent freedom from mortgages is an horrific outcome for you (and I haven’t even mentioned my missus’ Super, just a little less than mine!) but to curse a fellow Australian as you have does not speak well for other Irishmen here, including Bill Bonner. When your blood is up, you slash wildly. Even friends are cursed.… Read more »
Stillgotshoeson
Guest

Comment by Biker on 9 February 2011:

“Will Biker Pete survive Shoes’ Curse…. With any Irish luck… no, he will not.”

During my long and happy life, I’ve learned that Karma is a dish best served cold. Karma has a sense of humour, in fact. ;)

I agree fully, and shall laugh loud when Karma punches you in the face as you are an evil man….

Back to !ignore mode…. ;)

Biker
Guest

“Feel free to retort but you are officially on my !ignore list..”

No, you’ll respond whenever I expose a glaring truth with which you’re uncomfortable.

Ned: “You’re a hard man Shoes.”

No, this is a soft man, Ned. How long did his resolve to ignore me last?
An hour? There’s no ‘hardness’ here. Blind rage isn’t a characteristic of
a fighter. The impotence of his responses speaks volumes.

Stillgotshoeson
Guest
Ned, I think I have set a nerve off in your friend Biker…He seems quite upset, multiple posts.. Funny he mentions Impotence… For a married man he seems to spend a lot of time on forums in the evenings… digging ditches for septic and Cat 5 cable during the day, guessing he has had his prostate removed due to prostrate cancer… First he pissed blood must have been frightning.. Survivability is quite high from that though so that is not a good enough disease for him to contract… Liver is for sure the way for him, at his age highly… Read more »
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