Depression in the USA - Deflation verus Inflation

[skid]

The ECB and several countries - Denmark, Switzerland, Sweden - all have negative interest rates.
http://www.economist.com/blogs/econo...st-explains-15

The problem is that it doesnt help solve the problem either. Neither has QE. Hindsight shows that nothing has really worked. There are now extremely limited options available to central banks to try and get the global economies moving again. This is why this bear market may last for a very long time - deflation is a killer of stock markets

If this article is on the money then we would then expect the NZ dollar to appreciate considerably(others would want to join our ''interest rate party''---The really scary thing about this scenario is the added incentive of people to take their money out of the banks which could lead to the dreaded ''bank holiday'' or haircut-(precious metals?)--Even with the added possibility of a drop in housing values,Im grateful for free hold properties.

[digger]

The ECB and several countries - Denmark, Switzerland, Sweden - all have negative interest rates.
http://www.economist.com/blogs/econo...st-explains-15

The problem is that it doesnt help solve the problem either. Neither has QE. Hindsight shows that nothing has really worked. There are now extremely limited options available to central banks to try and get the global economies moving again. This is why this bear market may last for a very long time - deflation is a killer of stock markets

Wrong. You get things moving by doing the very thing that central banks and govts are not doing. So if you want stag inflation follow the current trend and have quantative easing that helps the rich,the banks and big companies.
Back in the 70's it was easy to get things moving as unions forced big pay rises that generally went to the poorer section of the economy. The poor are always poor because they immediately spend,spend,spend. the rich and the banks keep their money.
Note that the QE just made the banks healthy which was suppost to be good for the country or so we were told. What the economy needs is more purchasing power [from the poor]not richer rich.

[Aaron]

Only problem is that its not the 1970's any more. Now if the Unions ask for more money, the business simply sacks everyone and moves production to China or other parts of Asia where wages are much lower. So we are trapped in economies where wages are being cut, not increased, in order to keep jobs onshore. And Australia is still one of the highest wage cost countries in the world - they are going to have to come down a lot more in order to be competitive (or the AU$ is going to have to drop a lot more).

That might have been due to protectionism back in the 70s which is apparently the next step after currency devaluation so we might be heading back there. Although the next step after protectionism is war so I hope not.
My main problem is that I have been saving, waiting for a downturn but further money creation and negative interest rates should send asset prices to the moon and being heavily leveraged would be the only way to go. A downturn may never come and if it does central banks will provide money to prop things up. I end up with worthless currency while risk takers get all the assets. very frustrating and that is why the negative interest rate article is upsetting for me personally.

Something is causing the world sharemarkets to falter in spite of central bank support. maybe there is a maximum amount of debt you can take on and maybe we are nearing that point.
The people I read have been saying all along the Fed would never raise rates and their next step is further QE(or negative rates). So far they are right, maybe I should be looking at gold again.
If Japan is the leader in this then interest rates will be down for at least the next 20 years. There is no way the Japanese govt can survive even a slight increase in interest rates from what I read.

[digger]

Only problem is that its not the 1970's any more. Now if the Unions ask for more money, the business simply sacks everyone and moves production to China or other parts of Asia where wages are much lower. So we are trapped in economies where wages are being cut, not increased, in order to keep jobs onshore. And Australia is still one of the highest wage cost countries in the world - they are going to have to come down a lot more in order to be competitive (or the AU$ is going to have to drop a lot more).

And QE did not bring staglation. Which was what the US was hoping for - to inflate away all its debt to make it manageable. We have basically proven that Keynesian economics is bull****. Now if we have deflation, that debt is just going to get harder and harder to pay back.

Just a correction. When when you say that QE did not bring stagflation ,did you not mean it did not bring inflation,which the US was hoping for?

[Baa_Baa]

One can only ever vest in the now, that makes sense for you right now. Ignore the noise that distracts from the now. Get the tools to examine the now. The luxury of changing your mind is part of the now, whenever that might be. Else spend your time second guessing and miss the opportunity of the now.

[Aaron]

Maybe not so smart if you have been mostly in cash for as long as I have. But maybe a sign the initial deflation story could be right.
http://money.cnn.com/2015/09/29/inve...nds/index.html
I suspect central banks will push peoples faith and trust in currency over the edge before they allow deflation to take hold. I still see the arguments against deflation as pretty weak especially if you have a declining population. (not an issue in NZ with our 60,000 new New Zealanders(close the gates))
Still holding off buying anything but starting to look at BHP as a long term hold. I wonder when hard commodity prices will stop falling.
If more QE then this might be of interest. http://www.thebull.com.au/articles/a...arco-deal.html
Our own NZX gold miner the lowest cost producer. In a commodity market with no control on price I would have thought control of costs would be the next best thing. Although at just over 20 times earnings (not sure what year as I just peeped in at ASB Securities)
Disclaimer; not trying to talk up my stock pick but might try to look into it further rather than OGC being my stab in the dark.

[Aaron]

The herald this morning tells me inflation still just winning the fight but inflation figures don't include assets like houses and shares which have been inflating significantly. Looks like that trend is starting to change. Commodities have been providing some hope of a win for deflation for some time now. Glad I didn't buy BHP back in Sept. Wait for negative interest rates and more money printing from central banks if this continues. Can't let those savers be rewarded for their discipline and restraint I think we might see currencies destroyed or depositors money taken to save banks before we allow things to deflate.

[Aaron]

I read Liam Dann (NZ Herald)on why low inflation rates are bad for the economy. What a load of s**t. Actually I suspect the majority of people would have been OK with the inflation figures if there wasn't the massive central bank induced inflation of house and asset prices. Central banks are doing a wonderful job of creating inflation it is only in asset prices though so now we have a world of haves and haves nots. Ironically in an effort to keep things the same they are hastening change, for better or for worse.

How do the economic experts reconcile constant money supply growth with a declining population. I am thinking Japan here as immigration in NZ ensures the constant growth of people here in NZ.
Is a sustainable economy achieveable? or is the financial system really a Ponzi scheme that can't stop or it will collapse.

[JBmurc]

Yes the thought high inflation is good for the common man is a load of bollocks(or deflation for that matter) very low inflation much better ....esp as incomes have not moved much if at all ....working in the export sector my 2015/16 income was the same as I made in the late 90s (has decreased as the Higher NZD/AUD ) .....

Now compare that to property / food costs etc ... locally in Queenstown an average house is over 11 times local av income ....only years ago it was 5-6 times

read somewhere the current average NZ family outgoing per week average come out at $1100pw ...$57,200p.a what a joke

The median income from wages and salaries across all jobs in June 2014 was about $45,000 a year (or $865 a week) before tax, according to a Statistics New Zealand income survey. This includes full and part-time jobs. The full-time median income was about $51,000 ($989 a week).

[Aaron]

Liam Dann at it again in the herald today on why the reserve bank must cut interest rates (He could get a job as a bank economist if journalism doesn't work out for him).

According to the statistics inflation is at .4% and this is terrible. I would have thought price stability would be good for people.

Unfortunately we know inflation isn't at .4% especially if you are wanting to buy a house. The only valid reason I can think for cutting interest rates is because everyone else is and we don't want our currency to rise and screw our export industries. Possibly savers getting 3% nominal returns is upsetting for the over indebted baby boomers running the country. At 3% less .4% equals a 2.6% real return when it should really be closer to zero or less than zero according to the great minds running the worlds financial system.

It must be galling for rental investors not having 2% taken off their mortgages each year. Even more galling that anyone should suggest their capital gains be taxed. Keep in mind the over 10% house price appreciation is tax free while your 2.6% real return is a lot less once tax is taken off your 3% return.
I suspect baby boomers have worked out how to fund their retirements as they haven't put anything aside. Create a society of haves and have nots and they can rent NZs housing to young NZers and the poor wage earners whose wages are rising at less than half the rate of house price inflation.

Good one Liam and Graeme Wheeler. It makes sense but only if you want to penalise savers and reward borrowers. How long can you discourage saving before even the most conservative and timid investor wakes up to the fact that cash and debt are becoming the most risky investment option. I wonder if they really believe that low inflation is a problem or if they are being deceitful and actually know which side of their bread is buttered.

All the talk of a housing crisis and the fixing the supply side of the equation. The Demand side could be looked at as well I suppose, raise interest rates and lower immigration for a start.
Interesting reading what was said back in Feb 2015.
https://www.tvnz.co.nz/one-news/new-...es-key-6228040

Even Bill Gross the "Bond King" has been recently quoted as saying real assets such as real estate and gold are the best investment options currently.

That's my morning rant over. Still sitting on cash like a big dummy, I shouldn't be worried about what seems right or fair but should go with whatever the economists and finance people want. Just angry at myself because I haven't and having missed the boat continue to be frustrated by the bulls**t coming out of the media and world central banks.
Time for change at the top.