The Ending Crisis, A Prelude to Stagflation

Commodity News Center ^ | 8/27/09 | Christopher Laird

[h20skier66]

Now that we are just about 2 years into the world financial/credit crisis, it’s time to ask what is next in one or two years. One is to ask will stagflation emerge in 2010 and after?

We may be moving from a two year crisis stage to a post stage of stagflation that lasts years.

There are several aspects to clarify first. First, assuming there is NOT another credit meltdown this Fall/Winter, and the USD does NOT have a big devaluation event, but rather tails down gradually, then I expect stagflation to emerge. The US and Western economy could do a Japan esq battle with deflation for a decade. It is caused by a hobbled credit system and huge government deficits.

Depending on how the West handles that battle, inflation in essentials like food and energy could emerge, while the economy stagnates or has slightly negative growth or flat growth. One problem with the inflation side of the equation is that major currencies are so managed (manipulated) now, that to get inflation in any major currency (especially the USD) requires the others not to inflate or hold their own.

But, if the USD devalues, and we still do have fairly large exports that compete out there, then our trade competitors will be very tempted to co devalue, or else face a significant loss of price competitiveness. That currency linkage to exports is what allows the USD to hold up far better than it would with the US Fiscal deficit now running $2trillion a year – another problem that has to be discussed.

Some scenarios....

[h20skier66]

It's time to stop thinking about inflation and embrace deflation; it's here and it has it's grip on the economy.

[misterrob]

The economy needed a deflationary cycle to wring out the excessive credit and inflationary damage we were experiencing. Yes, it sucks royally to have to deal with the excesses of the past several years but the borrowing and spending had to stop. Too bad the government cannot seem to grasp that.

[netmilsmom]

So what do we do to make it through?

[RobRoy]

>>...to get inflation in any major currency (especially the USD) requires the others not to inflate or hold their own. <<

For most americans, I think inflation is not about the american dollar vs foreign currency. Rather, it is about the american dollar vs the price of goods. True, it would be relevant regarding imports, to one degree or another, but if corn goes up because it takes more dollars to buy it, then we’ll pay more for corn, even though it’s domestic.

If they increase the minimum wage to $100 an hour, prices will go up, regardless of the dollar’s value vs foreign currencies.

I personally think we are headed for huge stagflation and a massive drop in the american standard of living. Too many people were earning more money simply by refinancing their home than at their jobs. Those chickens are coming home to roost.

I think we are in big time deflation right now though. For those of us that have jobs it is SWEET! I’m looking at reducing my total rent by almost $1,000 a month. That is AFTER taxes.

[RobRoy]

>>So what do we do to make it through?<<

Acquire a taste for rabbit, squirrel and wild berries.

[netmilsmom]

Great.
Time to buy more rice!

[h20skier66]

Inflation and Deflation are not entirely a function of pricing as many believe. They are a measurement of the money supply and credit. Most inflation cheerleaders do not include credit in the argument so they miss the fact that we have deleveraged a staggering amount during the “Great Recession” and continue to do so. For those with money in a deflationary period things are wonderful; the problem becomes obtaining the money ;-). With regard to what we do about it you read up on investment strategies during periods of inflation and periods of deflation and pursue those investing options. A quick search will turn up information on how to invest in any type of flationary period; just check the resource for credibility and be careful.

[RobRoy]

I bought 13 acres in kentucky. I can grow my own now. The previous owner and I both have steers on the property. His wife canned 70 quarts of POTATOES a few weeks ago. I tried them. They’re great! I didn’t know you could can potatoes.

Food will not be a problem for us - if this thing requires us to move there.

[netmilsmom]

If the poo hits the fan, we might be begging you for a 23 feet on your property! That would fit our camper. And we are Irish. We are destined to live on potatoes.

Everything I planted this year failed miserably. We put them all in containers and got maybe six strawberries, no blueberries and about twenty tomatoes.

But we can weed and pick. My girls and I picked 10 pounds of blueberries in 2 hours! If you let us have goats, we will provide the cheese and fudge.

;-)