Thursday, December 31, 2009

Financial Terms


Anonymous Seth said...
FerFal, Wanted to address the belief in hyper-inflation that most preppers seem to have. I think it's just as likely (more in the short/intermediate time frame) that we'll have deflation. It's not like the Fed is printing money and dumping it on the street. They loan it to the big commercial banks who try to loan it to the public. If the public doesn't want to borrow more money, inflation doesn't happen! And especially not hyper-flation. On the other hand, deflation has been happening already and appears to be accelerating. As more people/businesses default on their loans, asset prices will continue to drop. Consider also price wars that various retailers have engaged in this past year. If you are prepping for hyper inflation, you may want to consider diversifying away from such an exclusive viewpoint.
December 30, 2009 10:58 AM


Thanks Seth. Preparedness means learning new stuff, new skills and trades. At first just because its a good idea, then after wards because you dont have a choice. Learning about these terms and definitions is important, the tricks used to cook the books and make the figures look nicer.

Selling food and other products in slightly smaller containers with odd shapes forms that "look" big but actually trick the eye is used a lot here. Most people wont read the actual volume or weight.

Seth, deflation wont be a problem, worry much more about inflation. As you well notice, people have no other option but to ask for loans, this will be unstoppable as more and more people become poor and try to claw their way out of that hole.

FerFAL

12 comments:

Anonymous said...

Deflation can occur in the short term, but the FED won't allow it over the long term......loans creat money and the interest can not be generated from thin air.....inflation is needed to account for the interest, ergo, inflation is cooked into the keynes formula.....

I know this probably wont make sense to anyone who doesnt alreay know...if you don't understand go here.....

http://www.chrismartenson.com/crashcourse

-Junker Jorg

Anonymous said...

John Williams from ShadowStats had an excellent inter view regarding inflation on ZeroHedge that's worth reading.

http://www.zerohedge.com/article/key-theme-interview-shadowstats-john-williams-you-guessed-it-hyperinflation-and-death-us-eco

I'm leaning toward a Ka-Boom theory. A shorter deflationary period (Ka) followed by a devaluation of the dollar (Boom). Growing up if someone got fat, they were always the last to realize it. More often than not they stayed in a state of denial for a long time. That's what happened to US. Most employed people don't even realize that there is anything wrong. They watch foxnews or cnn that has stories about Tiger Woods, missing person, or a plane crash in a far away country. They won't feel it until it hits Walmart in a big way and at the gas station. The last gas spike they survived with credit cards. The next one will hurt. Since the late 90's I would guess-timate that food prices have gone up 50%. They went up so slowly that people grumbled and paid or didn't notice. Packaging also started to get creative and content less. My advice is to buy extra canned and dry goods every trip to the store and put them in a closet. Rotate them out every two years. Figure out how to get around if gas was $10 to $20 dollars a gallon. I have good bicycles parked indoors with extra tubes, tires, racks and packs on them. I bought expensive locks also. They're waiting for the day when cars are driven only out of necessity and at great cost. Those in the US who have not started preparing need to start today.

Anonymous said...

"FerFal, Wanted to address the belief in hyper-inflation that most preppers seem to have. I think it's just as likely (more in the short/intermediate time frame) that we'll have deflation. It's not like the Fed is printing money and dumping it on the street. They loan it to the big commercial banks who try to loan it to the public. If the public doesn't want to borrow more money, inflation doesn't happen! And especially not hyper-flation. On the other hand, deflation has been happening already and appears to be accelerating. As more people/businesses default on their loans, asset prices will continue to drop. Consider also price wars that various retailers have engaged in this past year. If you are prepping for hyper inflation, you may want to consider diversifying away from such an exclusive viewpoint.
December 30, 2009 10:58 AM "
Inflation or Deflation, the debate continues. Deflation is a precursor to inflation. the deeper the trough, the greater the wave. In a inflationary depression, both conditions exists. Marc Farber, Peter Schiff, Jim Rodgers are some of the better known experts, yet they are only a few of the Austrian economists who saw this coming years ago and continue to be accurate. Schiff explains things best. The Keynesian school of economics did not see it coming and continue to be mostly inaccurate. Keynesian ideas dominate our society and was adopted during the Great Depression and became popular world wide. Politicians live to spend money and Keynesian economics justifies deficit spending. The Austrian school is the old school of thought.

One does not need to have a deep understanding of economics to make a choice that would be better than a coin toss. If team A calls it right most of the time and Team B calls it wrong most of the time, I would go with the 'A' Team, the 'inflation dudes'. Preparing for an inflationary Depression is really not all that different than preparing for something like the Great Depression. In effect, the question is almost moot. More important would be the severity of conditions expected in either. The Austrian guys expect the worst, a hyper inflationary depression. They expect both and both senarios to be severe.

Doing the best one can to prepare means if a worst case does not come to pass, they can back off to the appropriate level and help their nieghbors. It is better to have "it" and not need it, than the other way around. Those who do not prepare won't have 'it', and when needed most, they will not be able to get 'it'.

a

Anonymous said...

I think there is a bit of confusion when we talk about deflation or inflation. There has been horrible asset deflation in the US - particularly real estate, but likewise in other tangible assets. Seen new or used car prices lately? However, consumables, like food and household products, are unlikely to support continued deflation. Their actual input costs are not declining rapidly, so their producers don't have the latitude to drop prices, unless they want to go out of business faster.

However, I thought we'd see hyperinflation following the massive monetary and fiscal stimulus. It hasn't happened, mainly because money velocity fell off a cliff. Until we see more borrowing, and increased money velocity, the irresistible force will be trumped by the immovable object. So, short term - deflation is possible. Long term, with all the stimulus, unless the Fed can suck up trillions of dollars of reserves without tipping the apple cart, inflation is a certainty. We'll not even discuss the fiscal stimulus. That's another story entirely.

DaShui said...

I work in a bank, banks can't make loans because the banking regulators won't let us. They are afraid of taking the blame if the loans go bad.
On the other hand, restaurant owners tell me their cost for food is going straight up.
When I first started in the bank in the 1960's, $100 bills we too large to use, they were kept in the vault. Nowdays people come in asking for $1000 bills. Shadow Stats estimates inflation to be 9% now, which means it will take eight years to half the purchasing power.

P.S. Are you as excited as I am about the 4th generation Glock coming soon?

Anonymous said...

I'd have to disagree with Seth. In the U.S., the Federal Reserve already has committed itself to inflation, if not hyperinflation. During the recent bank crisis, the Fed took bad assets onto their balance sheet and exchanged it for cash. Taking on those assets at market value created an offsetting liability in the form of cash paid out to sellers. Now, the Fed actually pays banks to store this electronic cash with them. It's known as "excess reserves". If the Fed lets this one trillion USD hit the pavement, I fear for the consequences.

Anonymous said...

already seen a inflationary depression when the money i saved for housing was put into banks and received 3 percent interests while enabling the bank to print up 10 to 50 times as much debt currency to compete with my one dollar deposit and thus drove the housings up 300 percent in prices while i made but total just 10 percent and the housing costs/price was not counted in the inflation numbers so that my dollars purchase power would not be stable a stability that was the job definition purpose of the federal reserve bank,..manipulaTIONS COMPLETELY.....TROUBLES

Anonymous said...

ONE TRILLION CASH PRINTED TO COVER ONE QUADRILLION IN DERIVITIVE LOSES? FOR WHO!

Anonymous said...

WHY IS MY HARD EARNED/HARD SAVED DOLLAR WORTH SO LITTLE IN INCOME PRODUCING ABILITY IN SUCH A CASE?

Anonymous said...

Deflation is what is coming. The Fed is "printing" all they can to support asset prices and they are losing slowly. Hyperinflation is the last thing after deflation that the Fed wants. If the Fed hyperinflates it destroys itself, the fed is the dollar.

Now after we go through the deflation there might be hyperinflation but that will be due to political pressure that will become irresistible at which point the fed will have to bow to the will of the mob who is out to get them. I think time is better spent following the advice Ferfal offers regarding preparing your person for the difficult times to come and to gather things that are likely to become scarce, inflation of imports is all but certain.

RPH

Anonymous said...

Another thing which is very clear to me, there is current high inflation in governemnt salaries....I work under the teat of the gov, and can see my pay not being matched in the private sector. So perhaps banks are not lending to private folks, but our wonderful big brother doesnt mind spending helicopter bens handouts.....

You can extrapolate you own conclusions from this as you see fit. But it is occurring.

-Junker

Seth said...

Thanks for your reply Ferfal. Looks like you and most of the commentators here agree with the inflationary forecast. However consider this, as Anon @10:18 noted, the Fed has already committed to inflation, yet they've been largely inept at keeping housing prices from massively deflating the past 3 years. The Silverdome in Detriot was built for $57 million in the 1970s. Recently it was purchased for less than many 2 bedroom lofts in my city sell for. Defaults lead to deflation. The Fed has a tremendous amount of power, but not unlimited. So far they still can't force people to borrow more money. And people in this country are up to their gills in debt. I'm not sure how it was in Argentina in 2000, but the capacity here for more debt appears to be almost at zero. Most people graduate with $25,000 to $30,000 in student loans (20 year repayment), perhaps a new car loan as well, $10,000 to $15,000 in credit card debt, and possibly a mortgage added on to that. Most people I know are paying off credit cards and trying not to borrow anymore. I was already aware of this, but DaShui also noted that regional Fed authorities don't want banks to loan out more... Why? Because of the high default risk most people have now (and to increase loan loss reserves). Yes, many people in desperate straits will want to borrow, but banks right now want to really make sure they'll get their money back. And most loan candidates can't make a great repayment guarantee. I do think eventually we'll see some high inflation here, but only after years of defaults and ongoing deflation. All I'm saying is if you have the opportunity and resources, put a little diversification into your prepping. Gold (or silver) will be a great long term asset to hold, but your home may not necessarily shoot up in value again, and it may just drop 10%-20% in the next few years.