Inflation or Deflation 02 (Aug 14 - Dec 25)

[winston]

Inflation, deflation, or hyperinflation?

by Bill Bonner

Source: Bonner & Partners

http://thecrux.com/inflation-deflation- ... inflation/

[winston]

Here’s how China will make deflation worse by Bill Bonner

There is nothing like easy money to cause people to make mistakes. Americans overspent. China overproduced. Now, Americans can’t step up their buying (they owe too much already)… and China has too much capacity.

As the renminbi goes down, the dollar, yen, and euro will have to go up. Commodities – priced in dollars – will stay down. U.S. corporate profits will fall. The stock market “tape” will go down. Consumer prices, too, will remain low… or go negative.

Source: Bonner & Partners

http://thecrux.com/how-china-broke-the- ... e-machine/

[winston]

Inflation Is Coming — for Real This Time

By Anthony Mirhaydari


Source: The Fiscal Times

http://finance.yahoo.com/news/inflation ... 00598.html

[winston]

The No. 1 Threat to Your Retirement

By Steve McDonald

Source: The Oxford Club

http://wealthyretirement.com/videos/the ... ?src=email

[winston]

Protect Yourself from the Fed's "Inflation Delusion" with This

By PETER KRAUTH

Source: Money Morning

http://moneymorning.com/2015/11/24/prot ... with-this/

[behappyalways]

Global inflation: Low and behold

Another year of low prices will create strains in the world economy


ECONOMISTS don’t forecast because they know, said J.K. Galbraith; they forecast because they’re asked. A question that is increasingly put to them is whether inflation, which has been remarkably quiescent for years, will spring a surprise in 2016.

After all, the debt troubles that have weighed down rich economies since 2007 are fading; labour markets in America, Britain and Germany are increasingly tight; housing markets are gathering steam; and the Federal Reserve has just raised interest rates for the first time in almost a decade.

Inflation in America and Europe should indeed pick up from its present, near-zero state as the big declines in energy prices at the turn of 2015 drop out of the headline rate. But a glut in the supply of crude means that oil prices are falling again.

If debt is receding as a problem in rich countries, it looms larger in emerging markets, where overcapacity brought on by binge-borrowing exerts a downward force on prices. There is inflation in commodity-exporting countries, such as Brazil, whose currencies have been trashed.

But global inflation is a tug-of-war between bottlenecks in parts of the rich world and imported deflation from emerging markets, and the enduring fall or stagnation of prices looks set to dominate for a while yet (see article). Indeed, this “lowflation” means that three aspects of the world economy are worth watching in 2016.

Start with Saudi Arabia. The falling price of crude is in part a consequence of its commitment (reiterated by OPEC ministers on December 4th) to produce at full tilt. The idea is to flush out the weaker producers in America’s shale-oil industry and elsewhere. This is proving a costly gambit.

Saudi Arabia needs a barrel of oil to fetch around $85 to finance public spending and around $60 to keep its current account in balance. Yet the oil price recently fell below $36, to an 11-year low, before rebounding a little. America has sustained oil production of above 9m barrels a day, despite a sharp fall in the number of oil rigs, suggesting that shale firms are becoming more efficient.

This week Saudi Arabia said that it would cut local subsidies on petrol, electricity and water in order to chip away at a budget deficit that reached 367 billion riyals ($98 billion), or 15% of GDP, in 2015. The Saudis are burning through their (ample) foreign-exchange reserves to pay for imports while maintaining the riyal’s peg with the dollar.

But the cost of this strategy has already forced two other oil exporters, Kazakhstan and, more recently, Azerbaijan, to abandon their dollar pegs. The public finances of other big oil producers, such as Russia and Nigeria, are also under pressure. No wonder a devaluation of the riyal this year is a favoured tail-risk for currency forecasters.

A second place to watch is China. A construction boom has left it with a mountain of debt and excess capacity in some industries—notably steel, whose falling global price has claimed jobs in Europe’s industry and led to growing complaints of Chinese dumping.

Factory-gate prices have fallen in China for 45 consecutive months. Further fiscal and monetary stimulus should help to boost demand, but will also hinder the management of China’s exchange rate, which is already under pressure from an outflow of capital.

As with the riyal, the yuan has just about kept pace with the dollar’s ascent over the past two years, leaving it looking expensive. Beijing has signalled that it wants to benchmark the yuan against a basket of currencies, and some forecasters expect a gradual decline in its value against the dollar in 2016. But there is an understandable fear that the yuan may slip anchor, potentially touching off a round of devaluations in Asia.

A third outcome from continued lowflation will be increasingly lopsided economies in the rich world, particularly in America, where recovery is more advanced than in Europe. If productivity stays as weak as it has been recently, unemployment is likely to fall still further.

At the same time, slow growth in emerging markets is likely to keep downward pressure on commodity prices and on their currencies. A strong dollar has already driven a wedge between the performance of America’s manufacturing and service industries. Further appreciation would make it harder for the Federal Reserve to push through more increases in interest rates.

All this would make for a strangely configured economy by the end of the year. An unemployment rate of 4%, a Fed Funds rate below 1%, an overvalued dollar, a strong housing market and inflation below the Fed’s target of 2% is a plausible, if very odd, mix, which could portend either a sudden burst of inflation or enduringly feeble demand (see article). An honest economist will admit the uncertainties in any forecast. But another year of lowflation will surely tax policymakers.

Source: The Economist

[winston]

‘The deflation monster has arrived’

by Chris Martenson

Source: Peak Prosperity

http://thecrux.com/analyst-the-deflatio ... s-arrived/

[winston]

Trend #1: Deflation

By James Altucher

Most people are scared to death of inflation.

If most people are scared of something (like Ebola), it probably means it was a media or marketing-manufactured fear that will never come true.

The reality is, we live in a deflationary world.

Warren Buffett has said that deflation is much more scary than inflation. It’s scary to him because he sells stuff. It’s great for everyone else because we buy things. However, to be fair, it’s a mixed bag.

When prices go down, people wait to buy, because prices might be cheaper later. This is why some of the scariest points in our economic history were in the 1930s and in 2009 when there was deflation.

How did the government solve the problem? By printing money and going to war. That’s how scary it was. To solve the problem, we gave 18-year-old kids guns, sent them to another country, and told them to shoot other 18-year-olds.

People have all sorts of statistics about the government debt and the dollar decreasing 97% in value since 1913, etc.

I don’t care about all of that. I want to make money no matter what.

Here’s what I see: my computers are cheaper. Housing prices haven’t gone up in 10 years. And people are finally starting to realize that paying for higher education isn’t worth as much as it used to be (too much student loan debt and not enough jobs).

All electricity is cheaper. All books are cheaper. And I don’t have to go to the movies to watch a movie. All my music is basically free if I watch it on YouTube.

Don’t get me wrong: inflation exists because the government and the corporations that run it are preventing deflation. But the natural order of things is to deflate. Eventually something bad will happen, and the carpet will be pulled out from under everyone.

Perhaps if we have an inflationary bubble. Then deflation will hit hard, and you have to be prepared.

In a deflationary world, ideas are more valuable than products. If you have ideas that can help people improve their businesses, then you will make a lot of money. For instance, I know one person who was sleeping on his sister’s couch until he started showing people how to give webinars to improve their businesses. Now he makes seven figures a year.

This “webinar trick” won’t always work. But then he’ll have ideas for the next way to help people.

Ideas are the currency of the 21st century, and their value is inflating, not deflating.

Source: ETR

[winston]

Is This Your Life?

By Rodney Johnson

Recently, the Bureau of Labor Statistics (BLS) released inflation figures for February. Being a statistics geek, I immediately went to the source data and combed through the figures.

As I looked through the numbers, from the single reading of the Consumer Price Index (CPI), all the way through the individual price changes, I found myself wondering what it all means.

I understand the data, and have analyzed it for almost two decades. But does this report give us any useful information at all? Or is it so divorced from reality that we should just junk the whole thing and start over?

The more I dug into the numbers, the less useful they became.

At first glance, it looked like prices were dropping. The headline number, which bundles everything together, was down 0.2% last month, and was up a meager 1.0% compared with last year.

But economists, including Federal Reserve members, don’t look at the overall number. They strip out the volatile sectors of food and energy so they can focus on the “core” areas where people spend their money every month.

While this is idiotic – since all of us must purchase food and energy to survive – and the price changes in those two categories are critical, let’s keep up the charade and look at other areas of note.

If we didn’t eat anything in February, and didn’t drive (or turn on the electricity or heat), then inflation ticked up 0.3% last month, and was up 2.3% over February of last year. That’s a big difference! We went from severely undershooting the Fed’s target of 2%, to overshooting it.

While energy prices are dragging inflation lower, the cost of shelter is pushing inflation higher. The cost of shelter was up 0.3% last month, and up 3.3% for the year. This category has an enormous effect on the inflation rate because it counts for 33% of all spending.

And that’s where my problems start.

Do Americans spend an average of 33% on shelter, both for their homes and vacation stays? That seems unlikely.

The rule of thumb when getting a mortgage is that it shouldn’t be more than 30% of your income. It’s true that renters, especially those who are young with limited income, will often use more of their paycheck for rent, but approximately 64% of Americans own their homes, and only 75% of those have mortgages.

If I conservatively estimate that all homeowners with a mortgage put 30% of their income toward shelter, that means the remaining renters must use an average of 51% of their income for shelter. Hmm.

Other parts of the measure are even more suspect.

College tuition reportedly rose by 3.2% last year, but don’t worry. According to the BLS, it only represents 1.8% of your budget.

With two in college and one going in the fall, I take issue with this.

As for those with little ones, the government shows that the cost of child care jumped 3.9%. But since it only takes up 0.742% of your budget, that’s no big deal, right?

Obviously I’m poking fun at the way the BLS averages costs across the entire country. Not all of us have college kids or toddlers, but the costs associated with them are spread to all consumers, diluting the effects of price changes.

But even when we get to items that are attributable to everyone, things seem out of whack.

To analyze how prices change for the average Joe, I assumed a household with the median income that pays 10% in total taxes, which leaves about $48,000 in disposable income, or $4,000 per month. I then took the different categories from the CPI calculation and estimated by weighting how much Joe spends in each area.

The CPI shows that Joe spends about $100 per month on car insurance, which increased 5.1% over last year. Clearly Joe is a fabulous driver with no tickets, low-value cars, and no young drivers in the house. But again, we’re averaging households with cars and those without.

So let’s get to the one category that, by law, all of us must have – health care, which jumped by 3.9% over the last year.

According to the CPI, Joe spends 6.06% of his budget on health care, including his monthly premium, doctor visits, dental care, vision care, hospital expenses (both inpatient and outpatient), etc. This includes everything but prescription drugs and medical devices. At that percentage, Joe coughs up (pun intended) $243 per month.

Again, Joe must be the healthiest individual in America, and have no children, since that figure seems far removed from reality.

Even when adding in those medical devices, health care only accounts for 6.82% of Joe’s budget. This seems remarkable, given that health care represents more than 18% of GDP.

One area that has dropped in price dramatically over the years is information technology, which was down 8.3% last year. It would be great if the BLS used some of this cheap computing power to derive inflation figures much more tailored to how people actually live. They might consider breaking the figures down by age groups, showing how inflation affects young adults through education costs, young families as they buy homes, and older consumers when they use more health care.

But I’m not holding my breath. Any analysis along these lines would immediately reveal an awkward truth. If the costs aren’t averaged across the entire spectrum, we have to confront the fact that groups like young families and retirees are getting crushed by rising prices.

Source: Economy & Markets

[winston]

Investors Are Starting to Worry About Inflation, These Charts Reveal

By Andrew Sachais

Rising commodity prices and a falling dollar are leading investors to hedge against future inflation pressures.

Source: The Street

http://www.thestreet.com/story/13517517 ... _ven=YAHOO