Depression in the USA - Deflation verus Inflation

[tricha]

Tricha, whats better – FALLING asset prices while debt stays the same, or RISING asset prices while the debts stay the same? A deflationary spiral will help nobody.

The Great Depression occurred through deflation and falling asset prices, and we had World War II, would you like to see that again? I gather Ben Bernanke is not stupid, and will certainly want to avoid Zimbabwe style inflation rates –*they'll print dollars, and then nuke them just as quick (you would believe) when things start to improve a little.

Its not perfect, far from it, it'll be messy and there will be more blowups – but why does everybody jump out of a window during a NORMAL part of the business cycle? What goes up, will come down and it'll go back up again!

I just don't buy the rhetoric that you're posting here, mostly driven with Gold in mind, that they world as we know it is going to end, well it has ended – and new opportunities are right in front of you.

And on Gold – if they're printing money of course the value of gold is going to go up as in line with inflation, can't see how its a store of value, when its priced in dollars?

Hmm Mr Devine, smoke and mirrors, there does not seem to be a clear picture out there.

Your food on the table, how does it get there

[tricha]

US banking losses revised upward


There were 252 banks in trouble at the end of 2008, the FDIC said


The US banks lost $32.1bn (£22.3bn) in the last quarter of 2008 - even worse than the $26.2bn originally reported, US federal regulators say.
The revised data by the Federal Deposit Insurance Corporation (FDIC) included higher charges for an accounting item known as goodwill impairment.
The FDIC said it was the industry's first quarterly loss in 18 years.
The FDIC also lowered the industry's net income for the whole of 2008 to $10.2bn from $16.1bn.
On Friday, the agency updated its earlier report for the October-December period.
The FDIC said it revised the data because of "substantially higher" charges for goodwill impairment.
Goodwill is an asset on a firm's balance sheets, which helps to determine of what it is worth beyond the tangible, including the added value from the potential for future success.
The FDIC did not provide the names of the institutions which accounted for the largest losses. In the last quarter of 2007, the US banking industry posted a $575m (£399m) profit. Last month, the FDIC said there were 252 banks in trouble at the end of 2008 - a rise from 171 in the third quarter.

[macduffy]

So, given all that's happened recently, what's another $6b between friends?

[tricha]

Tricha, whats better – FALLING asset prices while debt stays the same, or RISING asset prices while the debts stay the same? A deflationary spiral will help nobody.

The Great Depression occurred through deflation and falling asset prices, and we had World War II, would you like to see that again? I gather Ben Bernanke is not stupid, and will certainly want to avoid Zimbabwe style inflation rates –*they'll print dollars, and then nuke them just as quick (you would believe) when things start to improve a little.

Its not perfect, far from it, it'll be messy and there will be more blowups – but why does everybody jump out of a window during a NORMAL part of the business cycle? What goes up, will come down and it'll go back up again!

I just don't buy the rhetoric that you're posting here, mostly driven with Gold in mind, that they world as we know it is going to end, well it has ended – and new opportunities are right in front of you.

And on Gold – if they're printing money of course the value of gold is going to go up as in line with inflation, can't see how its a store of value, when its priced in dollars?

The million dollar question, will we have inflation or deflation, two sides to this story I was kinda hoping for Inflation, but .......................
10 Things You Should and
Should Not Do During Deflation

by Robert Prechter, President, Elliott Wave International | June 19, 2009

Print

1) Should you invest in real estate?
Short Answer: NO
Long Answer: The worst thing about real estate is its lack of liquidity during a bear market. At least in the stock market, when your stock is down 60 percent and you realize you’ve made a horrendous mistake, you can call your broker and get out (unless you’re a mutual fund, insurance company or other institution with millions of shares, in which case, you’re stuck). With real estate, you can’t pick up the phone and sell. You need to find a buyer for your house in order to sell it. In a depression, buyers just go away. Mom and Pop move in with the kids, or the kids move in with Mom and Pop. People start living in their offices or moving their offices into their living quarters. Businesses close down. In time, there is a massive glut of real estate.
2) Should you prepare for a change in politics?
Short Answer: YES
Long Answer: At some point during a financial crisis, money flows typically become a political issue. You should keep a sharp eye on political trends in your home country. In severe economic times, governments have been known to ban foreign investment, demand capital repatriation, outlaw money transfers abroad, close banks, freeze bank accounts, restrict or seize private pensions, raise taxes, fix prices and impose currency exchange values. They have been known to use force to change the course of who gets hurt and who is spared, which means that the prudent are punished and the thriftless are rewarded, reversing the result from what it would be according to who deserves to be spared or get hurt. In extreme cases, such as when authoritarians assume power, they simply appropriate or take de facto control of your property.
You cannot anticipate every possible law, regulation or political event that will be implemented to thwart your attempt at safety, liquidity and solvency. This is why you must plan ahead and pay attention. As you do, think about these issues so that when political forces troll for victims, you are legally outside the scope of the dragnet.
3) Should you invest in commercial bonds?
Short Answer: NO
Long Answer: If there is one bit of conventional wisdom that we hear repeatedly with respect to investing for a deflationary depression, it is that long-term bonds are the best possible investment. This assertion is wrong. Any bond issued by a borrower who cannot pay goes to zero in a depression. In the Great Depression, bonds of many companies, municipalities and foreign governments were crushed. They became wallpaper as their issuers went bankrupt and defaulted. Bonds of suspect issuers also went way down, at least for a time. Understand that in a crash, no one knows its depth, and almost everyone becomes afraid. That makes investors sell bonds of any issuers that they fear could default. Even when people trust the bonds they own, they are sometimes forced to sell them to raise cash to live on. For this reason, even the safest bonds can go down, at least temporarily, as AAA bonds did in 1931 and 1932.
4) Should you take precautions if you run a business?
Short Answer: YES
Long Answer: Avoid long-term employment contracts with employees. Try to locate in a state with “at-will” employment laws. Red tape and legal impediments to firing could bankrupt your company in a financial crunch, thus putting everyone in your company out of work.
If you run a business that normally carries a large business inventory (such as an auto or boat dealership), try to reduce it. If your business requires certain manufactured specialty items that may be hard to obtain in a depression, stock up.
If you are an employer, start making plans for what you will do if the company’s cash flow declines and you have to cut expenditures. Would it be best to fire certain people? Would it be better to adjust all salaries downward an equal percentage so that you can keep everyone employed?
Finally, plan how you will take advantage of the next major bottom in the economy. Positioning your company properly at that time could ensure success for decades to come.
5) Should you invest in collectibles?
Short Answer: NO
Long Answer: Collecting for investment purposes is almost always foolish. Never buy anything marketed as a collectible. The chances of losing money when collectibility is priced into an item are huge. Usually, collecting trends are fads. They might be short-run or long-run fads, but they eventually dissolve.
6) Should you do anything with respect to your employment?
Short Answer: YES
Long Answer: If you have no special reason to believe that the company you work for will prosper so much in a contracting economy that its stock will rise in a bear market, then cash out any stock or stock options that your company has issued to you (or that you bought on your own).
If your remuneration is tied to the same company’s fortunes in the form of stock or stock options, try to convert it to a liquid income stream. Make sure you get paid actual money for your labor.
If you have a choice of employment, try to think about which job will best weather the coming financial and economic storm. Then go get it.
7) Should you speculate in stocks?
Short Answer: NO
Long Answer: Perhaps the number one precaution to take at the start of a deflationary crash is to make sure that your investment capital is not invested “long” in stocks, stock mutual funds, stock index futures, stock options or any other equity-based investment or speculation. That advice alone should be worth the time you [spend to read Conquer the Crash].
In 2000 and 2001, countless Internet stocks fell from $50 or $100 a share to near zero in a matter of months. In 2001, Enron went from $85 to pennies a share in less than a year. These are the early casualties of debt, leverage and incautious speculation.
8) Should you call in loans and pay off your debt?
Short Answer: YES
Long Answer: Have you lent money to friends, relatives or co-workers? The odds of collecting any of these debts are usually slim to none, but if you can prod your personal debtors into paying you back before they get further strapped for cash, it will not only help you but it will also give you some additional wherewithal to help those very same people if they become destitute later.
If at all possible, remain or become debt-free. Being debt-free means that you are freer, period. You don’t have to sweat credit card payments. You don’t have to sweat home or auto repossession or loss of your business. You don’t have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even.
9) Should you invest in commodities, such as crude oil?
Short Answer: Mostly NO
Long Answer: Pay particular attention to what happened in 1929-1932, the three years of intense deflation in which the stock market crashed. As you can see, commodities crashed, too.
You can get rich being short commodity futures in a deflationary crash. This is a player’s game, though, and I am not about to urge a typical investor to follow that course. If you are a seasoned commodity trader, avoid the long side and use rallies to sell short. Make sure that your broker keeps your liquid funds in T-bills or an equally safe medium.
There can be exceptions to the broad trend. A commodity can rise against the trend on a war, a war scare, a shortage or a disruption of transport. Oil is an example of a commodity with that type of risk. This commodity should have nowhere to go but down during a depression.
10) Should you invest in cash?
Short Answer: YES
Long Answer: For those among the public who have recently become concerned that being fully invested in one stock or stock fund is not risk-free, the analysts’ battle cry is “diversification.” They recommend having your assets spread out in numerous different stocks, numerous different stock funds and/or numerous different (foreign) stock markets. Advocates of junk bonds likewise counsel prospective investors that having lots of different issues will reduce risk.
This “strategy” is bogus. Why invest in anything unless you have a strong opinion about where it’s going and a game plan for when to get out? Diversification is gospel today because investment assets of so many kinds have gone up for so long, but the future is another matter. Owning an array of investments is financial suicide during deflation. They all go down, and the logistics of getting out of them can be a nightmare. There can be weird exceptions to this rule, such as gold in the early 1930s when the government fixed the price, or perhaps some commodity that is crucial in a war, but otherwise, all assets go down in price during deflation except one: cash.
……….
For more on deflation, download Prechter’s FREE 60-page Deflation Survival eBook.
Copyright © 2009 Robert Prechter
Editorial Archive

[The Big Ease]

Sorry guys, but isn't deflation impossible when all you need to do is print more money to avert it?

[The Big Ease]

fair post ginshu.
if you are in speculative investments, then time to reconsider.
otherwise, play on...
the world is not falling apart. but PE's are.

good times. now is the time to be eyeing quality companies with excellent prospects and track records of delivering. if they get knocked off, then get stuck into them. you dont get these opportunities very often.

Posted 01/2008

I want to join the chorus of people claiming they picked the market and were right, so you should subscribe to their views until the end of time and suspend your own logic.

I told you it wasn't the end of the world and it's not.
Forget about the 60% fall in equities prices, I was right about the first point and I'll be sure to include it in all the sales and marketing material when I ask you to subscribe to my wealth of rehashed wisdom to ensure you don't miss the recovery.

Come on, I will even give you a ten% discount if you order now. Hurry, hurry while stocks last.

This bear has been a wonderful lesson. I had some BIG losses but have positioned myself well to make it all up and more.

[tricha]

I am mostly out the market and expect to remain so for the remainder of 2008. I think America will crash bringing our markets down to much lower points than they are now. I see the ASX being in negative territory for the year 2008 with a big crash or a series of minor corrections whatever, i wont be investing until the market shows a clear TA uptrend.
Its much safer sitting it on the outside in times like this. Macdunk

Hmm, its not over yet and this reminds of the 1930 depression, trade sanctions, watch this space.


Brazil slaps trade sanctions on US over cotton dispute


The WTO has ruled that subsidies to US cotton producers are discriminatory

The Brazilian government has announced trade sanctions against a variety of American goods in retaliation for illegal US subsidies to cotton farmers. The World Trade Organization (WTO) approved the sanctions in a rare move.
Brazil published a list of 100 US goods that would be subject to import tariffs in 30 days, unless the two governments reached a last-minute accord.
It said it regretted the sanctions, but that eight years of litigation had failed to produce a result.
It said it would raise tariffs on $591m (£393m) worth of US products - from cars, where the tariff will increase from 35% to 50%, to milk powder, which would see a 20% increase in the levy.

US farm subsidies are condemned worldwide. This archaic practice must stop


Carlos Marcio Cozendey
Brazil's foreign ministry

Cotton and cotton products would be charged 100% import tariff, the highest on the list.
The Office of the US Trade Representative said it was "disappointed" by Brazil's decision and called for a negotiated settlement.
Critics say the US has given its cotton growers an unfair advantage by paying them billions of dollars each year.
In 2008, the WTO ruled that subsidies to US cotton producers were discriminatory.
Tall order
Carlos Marcio Cozendey, head of economic affairs at Brazil's foreign ministry, told a news conference: "The idea was to distribute the retaliation broadly in order to maximise pressure.
"US farm subsidies are condemned worldwide. This archaic practice must stop."
However some analysts say major changes to these subsidies would involve modifying agricultural legislation - a tall order for the US Congress against a difficult economic and political backdrop, says the BBC's Gary Duffy in Sao Paulo.
Our correspondent says the dispute, which began in 2002, is one of the few in which the WTO has allowed cross-retaliation, meaning the wronged party can retaliate against a sector not involved in the case.
He adds that it appears the Brazilian government has deliberately chosen a wide range of products in order to have maximum impact.
Safety net
Cotton producers in the US argue that the system of subsidies has changed since the WTO made its original ruling in 2005.
"The US has made changes in the cotton programme as well as the export guarantee programme," Gary Adams, chief economist at the National Cotton Council told the BBC, adding that US cotton production was now 40% to 45% lower.
Mr Adams said he believed that subsidies were still justified.
"We feel this is a very important financial safety net for producers," he said.
Steven Bipes of the Brazil-US Business Council urged the US to take steps to avoid what he called "damaging" retaliation by Brazil.
"The business community finds it extraordinarily important that countries, including the US, comply with its WTO obligations and otherwise negotiate to find common ground when there are disputes," he told the BBC.

[tricha]

Oh yeah, just when u thought it was safe, it's rattling down the pipe.

Monday, March 8, 2010

March 8 2010: Gazing Through The Long Tall Grass





Detroit Publishing Co. The Accident November 12, 1906
"Accident at Michigan Central R.R. depot, Detroit"


Ilargi: Greece is saved, the Euro will be fine, so will the eurozone, it was all a storm in a teacup. Even Paul Volcker sounds less negative about the Euro than about America’s own finances. Maybe that should tell us something. There will be a European monetary fund down the line (perhaps many years), but since the power structure in the EU is overly clear, it doesn’t really matter. German influence in the union, both economical and political, will increase, but the Germans know very well what their limits are, so maybe that's not such a bad thing. Greece will certainly benefit from better accounting practices.

And then they’ll have to adapt to what is now called austerity, which is in reality nothing but a misnomer for what will befall us all, as it becomes everyday life in the 21st century. And not just for the Greeks, Portuguese, Irish and Icelanders, either, but for all everyday people all over the world. If they are among the lucky ones.

Meanwhile, many gamblers have lost fortunes shorting the Euro, while journalists like the FT’s Wolfgang Münchau - along with many of his peers in the English and American press- have once more shown that their knowledge and insights are exceedingly limited to their own few square inches of land and vision. The Euro lost about 10% of its value from the most recent top, but Europe’s export countries were shooting for a -much- bigger drop than that on the Greek scare. They’ll now have to find the next finance horror flick. A consolation for Germany is that the crisis will give them increased leverage to pressure southern Europe to buy more German instead of Asian products.

And that was why they all entered the European Union to begin with. Germany and Holland needed markets for their products, so they built them in their own backyards. Buy more German may sound like protectionism, but when your currency is 20-25% overvalued, the global playing ground is not exactly level to start with. And then you try to make it level. We've just seen part 1 of that film. America wants to China to to raise its currency, Europe wants America to do the same. beggar they neighbor.

A picture of weakness, or of resilience?

Germany’s main fear today may be that California, Illinois, New York and New Jersey (just to name a few) will crumble before Portugal and Spain do, which will make it that much harder to bring the Euro back to par with the dollar. Some relief could be provided by the currencies that have nowhere to go but up from where they presently are, the yen, yuan and pound sterling. Devaluing your currency can be a beneficial target, as the US shows, but if you let the process run too far too fast, a whole new slew of issues creeps in, and you're looking at a de facto crippled coin. Britain and Japan have no room left to move when it comes to their interest rates, at the very moment they may need -or at least want- it most.

The British commentariat can’t stop waxing about how great it is to control one's own currency (if you do, you can play rate games, which in modern economics means you’re saved no matter what), but they miss out on the fact that Euro is at the same time a bastion of support for all its users, while the pound stands alone. 60 million Britons, 300 million Americans, 330 million Eurozone inhabitants (the EU has over 500 million). It may be nice to have your own currency, but is it really the best option when that currency is comparatively tiny? Do the pundits over there ever wonder why the Euro is so strong in the first place? Could it be because the same markets that are set to pounce the pound any day now have strong confidence in it, and have come to realize that they can’t go after the Eurozone anymore then they can go after the US as a whole? Who would rule out that possibility?

It's all about one question after all now, isn’t it? Who is the weakest link on the globe today that's worth going after? Like a pride of lionesses watching a herd of wildebeest, gazing through the long tall grass, patiently - but increasingly hungry- looking for the proper prey. The least risk and energy, for the most meat. As you know, for me, Greece never fit that description to begin with. Neither does Portugal, too small. Spain and Italy have strengths that will keep them standing for a while longer. Moreover, Europe has indicated it will protect its weakest for now, and nobody in their right mind places best against Germany, France or Holland. At least for now. I'd look outside of continental Europe for minimum the next half year. I’d look at Indonesia, or Argentina, or California, or Anglia. But I’d be hungry.

PS: I realize there’s many of my American and British readers who feel I’m biased in favor of the EU, and against their countries, or even can’t be trusted to understand these countries. Me, I think I need to provide for those exact same readers a balance versus the anti- EU bias inherent in British and American media, simply in order to paint the most realistic picture. We’ll see what happens through the rest of 2010, but for now, I can say that I’ve always from the beginning maintained here that Greece would never be allowed to fail, and the Eurozone is much stronger than some papers would have you believe, and so far I’ve quite simply been proven right. I think the players that went after Greece are looking even more eager than before for the next wounded animal, and that they won’t find it in continental Europe, that George Soros would never dare take on Berlin. And that means the pride have to move on, while their appetite keeps on growing. I’ll be the first to admit this is an intuitive call, but I can't see how they can stop now. They need food to maintain their status.

[yogi-in-oz]

Hi Tricha,

Thanks for the info ... expecting the European mess to continue throughout 2010, with some particularly nasty stuff,
around 03082010 ... 10082010 (currencies ... UK???) ... 13-31082010 (a very critical period for Europe) ... then again,
in September 2010 ..... 24-27092010 and October ... and more negative news, about 04102010 ...

.... and, if you think it is over in USA ... just wait, until December 2010 and again, in March-April 2011 ..... some seriously
negative stuff expected, during those periods, unfortunately ..... (:

have a great day

paul



=====

[tricha]

Hi Paul

You are welcome, another great day over here, blue sky, 24 degrees and only 4 days of rain in 3 monthes.

Yes the WALL of worry is still about. How does this effect us, that's the big question. ????

Cheers Tricha

http://www.marketwatch.com/story/the...ire-2010-03-09


Paul B. Farrell
March 9, 2010, 12:01 a.m. EST · Recommend (14) · Post:
Collapse of the American Empire: swift, silent, certain

Commentary: Historians warning of a sudden 'thief at night,' an 'accelerating car crash'