Because of irresponsible interest rate policies of governments world wide, inflation will rear its ugly head next year. One thing that people are not talking about is the huge increase in food prices. In about 1.5 years a family of four grocery bill has increased on average $400/$500 a month to $800/$1000 a month. The food prices are likely to increase as food companies continue to raise prices to adjust for their commodity price increases in the last 18 months. The problem will be a global problem because many people in emerging market economies have increased their food consumption. People will demand higher wages and the cycle of inflation with no economic growth continues, we will be in a 1970's pattern for a long time.
Too many years of gross mismanagement of the economy has finally caught up and has no intention of letting go
The 70's were fun. The cold war was still going strong. Southeast Asia was hot. Republicans were in office. There was still some free love left. I was single.
-- Modified on 12/24/2008 11:51:08 AM
think major civilizational downturn...
anything that calls itself bongwater needs to be lobotomized by an insane chimpanzee
you post like you need one.
self reference as bongwater ? noooooo asswipe, you meant water on the brain...
you didn't want a toke or whisky, bummer! You are hurting dude.
What made you like this? Post some more share your pain dude.
If you haven't noticed the driving force behind the rise in food costs has plummeted in price to the tune of about 75% over the last few months.
Oil prices take a few months to get into the economy, they also take a few months to work their way out. People aren't demanding higher wages, they too are scared to death that they will lose their jobs to be demanding anything right now.
Depending on skill sets and the demand for a service some people are getting raises. Some companies are giving out big raises because they know good people will jump.
I honestly believe when we have recovery sometime in 2009/2010 we will have hyperinflation. People will demand higher wages to adjust for the inflation.
I saw a report on the nightly business report that the treasury department can't print money fast enough. They have contracted printing of money out to some company in Switzerland.
Many food companies say they can't lower prices because they have to recover from the outrageous increase in commodity prices this year. Yes we have had a correction in many commodity prices.
The crb index is in the process of forming a double bottom. A new bull market in commodities will follow ==> major inflation coming.
I agree that we will more than likely experience "hyperinflation" as a result of trying to put over a trillion dollars of borrowed money into the system.
The premise of your OP is still flawed however. We have not had a "correction" in commodities. We have had an implosion of commodity prices. The deflation that will follow will almost certainly be followed by a period of high or if you will "hyperinflation". Your theory of the "causes and effects" strikes me as coming from some talking head on the news and not from a "real" economy expert.
No one has any idea if we are forming a "double bottom" in the crb indes anymore than the geniuses here tried to pick the market bottom of the equities markets. With massive government interference, attempting to pick market bottoms is a fools errand, and with thousands of prognosticators out there just because someone actually picks the right number doesn't mean that he actually knew what he was doing. Stupid people are correct all the time in the same manner that even a broken clock is right twice a day.
The US is not the only nation that is printing money to re-inflate. I will believe the deflation argument if the crb goes below 200. There is evidence that some commodity prices are stabilizing.
-- Modified on 12/25/2008 9:23:02 PM
"printing money", meaning flooding the markets with liquidity, is the financial equivalent of putting the patient on plasma transfusion, glucose drip, and CPAP oxygen.... it takes a patient in critical condition and keeps him alive in the intensive care unit while he awaits major surgery and hopes to find tissue matched organ donors...
Just because the federal reserve system is willing to purchase treasury instruments in titanic quantities doesn't mean major lending institutions are anywhere near returning to their pre-meltdown lending standards. Why ? Insuring against counterparty risk in the $50 trillion (now we're talkimg real money) Credit Default Swap
has become more expensive by several orders on magnitude. Since you can't offload risk like before, unless you are willing to pay a ludicrous premium for doing so, loan originators are now back to the old school way of doing business, acting as "prime lenders" and holding 100% of the bag.... in practice this means that institutions that would lend $50 million in 2006-7 may be willing to lend $5 million against a project with the same risk profile.
You get the idea....
One of the biggest insurance companies went out and bought all the CDO (Collateralized debt obligations)that there CDS (Credit default swaps were written against). They will hold the CDOs until they mature, they were able to cancel the CDS. They only have $15 billion of exposure now to CDS. I am sure other finical institutions are quietly doing the same thing.
I know with my own cash that I have been saving in money markets for years I am thinking about going to corporate bonds and junk bonds. The prices are at amazing discounts. I am sure other investors are thinking the same thing. Once that happens the credit markets will loosen and the economy will recover.
However, it will also be a protracted buy and hold strategy while the bugs are worked out... hedge funds are currently going through a major retooling of how they model risk, so for now one of the world's 4 major sources of capital flow are somewhat sidelined, you can buy their inventory at a sweet discount. Once the hedge fund industry has regained investor confidence, Bernie Madoff's lessons have been absorbed and digested, the funds will be back in full force. Better to get you business done before they dominate the playing field again.
You will want the best advice available to you to sort out the permajunk from the good stuff that got unfairly mixxed up with the toxic waste. There is still plenty of genuine toxic waste and plenty of crooked dealers who would love to share their inventory.
The best plays will be where the new economy is going. Health care (the wealthiest economies are also the ones aging and leaving the workforce), new energy models, biotech could explode if the present dysfunction legal environment in patent law is resolved, america is looking at something like a ten trillion dollar infrastructure makeover, seeing as we are 15th in the world in internet service quality... so we will probably see a fascinating mixture of high tech and low tech working together to do everything from laying extensive fiber optic networks to rebuilding bridges... and it will make many people very, very rich in the process...
As for hyperinflation or "Zimbabwification", no, I somehow doubt we will see that, as money will be chasing major capital investment projects and locked into long term committments. Hyperinflation occurs when there is no real productive investmet so capital is diverted to useless crap, such as the explosion of near worthless art that the last round of madness produced...
Downsides ? There is a real possibility that Mexico could drift into failed state status and pose a security risk somewhat like sharing a long border with Iraq involved in an endless assymetrical war of attrition... if, and that is a long shot if, Mexico does lose control of its law enforcement apparatus, we may have to collectively divert enormous resources into stabilizing a band of territory from texas to california...no idea what that would cost in terms of investement capital, human capital, social restructuring in the USA...