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research24
24th November 2008, 19:24
Stage Two Deflation
By R-24

Stage One of the deflationary cycle is the drying up of credit due to rising debt defaults. Stage Two occurs as a result of the decrease in credit which causes a reduction in prices. Price deflation has now begun with a vengeance.

Overall CPI for October is down a full 1%.
Retail sales down 2.8%
Consumer spending 3Q08 down 3.2%
October Producer Price index down 2.8%
Crude food price down 11%
Intermediate goods down 3.9%
Crude goods down 18.6%

Unemployment, adjusted to remove government fraud, now rests at 11.8%

Overall more than $50 trillion in asset values has vanished. Against this massive deflation so far the government has spent $4.28 trillion attempting to stop deflation or a mere 8%. It doesn’t look like even a small dent in deflation.

The gold bugs are still screaming “inflation” but this is becoming as silly as trying to sell sand in the desert. About the only thing that will now move PMs will be fear for the dollar or of US debt default. So far, there is really not much sign of either. Why not? Because all the gangs of paper speculators are true believers in the “power of the Fed.” Even tho the emperor has no clothes, Wall Street still sees purple robes. They are not about to capitulate. YET!

JoeSixPack
24th November 2008, 19:41
...The gold bugs are still screaming “inflation” but this is becoming as silly as trying to sell sand in the desert. About the only thing that will now move PMs will be fear for the dollar or of US debt default. So far, there is really not much sign of either. Why not? Because all the gangs of paper speculators are true believers in the “power of the Fed.” Even tho the emperor has no clothes, Wall Street still sees purple robes. They are not about to capitulate. YET!

At some point reality sets in, regrdless of what people believe.

Eventually the emperor suspects that everyone is staring at his little privates and gets embarrased. When he covers up with his hand, everyone realizes he realizes , and starts looking around everwhere else, whistling, etc..The blushing emperor has no choice but to run away and hide/ cover-up. Everyone else rolls on the floor laghing (ROFL). Then the whole game is given up.

nuslvrkwen
24th November 2008, 19:58
I'm not worried about inflation. Deflation sounds interesting because I don't recall this ever happening. World wide deflation sounds great really. You listed lots of indexes that are down; research24. But do you really think prices for food, clothing, etc. will actually fall to sell them? OR just retreat back to earlier levels. Earlier levels like maybe 30-40 years ago?

I've been buying and holding physical gold and silver because it's real money. I'm not using credit to buy anything these days.

research24
24th November 2008, 20:00
I'm just listening to Kudlow pumping up the stock junkies. They're all set for a 10,000 pt. rally here in the midst of a depression in the making. Those people are a good lesson on how greed turns people's brains to mush. Gold and silver fever can be even worse and you can see that kind of irrational thinking expressed here every day.

The ratio of winners to losers in silver is at least 1:5.

research24
24th November 2008, 20:10
I'm not worried about inflation. Deflation sounds interesting because I don't recall this ever happening. World wide deflation sounds great really. You listed lots of indexes that are down; research24. But do you really think prices for food, clothing, etc. will actually fall to sell them? OR just retreat back to earlier levels. Earlier levels like maybe 30-40 years ago?

I've been buying and holding physical gold and silver because it's real money. I'm not using credit to buy anything these days.

Prices will simply fall to whatever people can afford to pay. This can't be otherwise when there is no credit.

It is hard to appreciate (especially if you're young) just how huge this global credit bubble was and what its bursting will mean. Nobody can honestly say just how bad things will get. And while I love to make predictions, my forward vision keeps getting shorter and shorter. We're now at the point where its hard to guess what the next day will bring. Every day is a new surprise.

One thing for sure: something else big will blow up pretty soon. You got to wonder how much longer gummint can keep doing bailouts until it goes under the waves?

JoeSixPack
24th November 2008, 20:19
...We're now at the point where its hard to guess what the next day will bring. Every day is a new surprise...

And I think that is exactly the reason to own some PMs- uncertainty.

TomGray
24th November 2008, 21:37
R-24 has put my worst fears to paper. The vast sums of currency "lost" as the credit markets dried up have to be hugely deflationary. The Fed is creating currency as fast as it can, but, is it creating it fast enough?

This is a very important point.

If the money supply grows and inflation comes our way, then all of us who own PM will do well.

If the money supply shrinks, due to the vast amounts of currency lost in the credit market, and we go into a deflationary spiral, then I am afraid most of us (myself certainly) are lost.

Deflation is so scary that, IMHO, the Fed will do ANYTHING to fight it.

I think R-24 brings up a good point. It is the point that I worry most about. The signs are not good, gas prices down, home prices down, the CPI down, the reserve banking system unwinding. It looks deflationary to me.

I am pretty sure that in a deflationary scenario no investment does well, and that includes PMs.

fredrock
24th November 2008, 22:52
I am pretty sure that in a deflationary scenario no investment does well, and that includes PMs.

Tom, I think you will be pleasantly surprised at how your PM's will do in a deflationary scenario. I am convinced that apart from supply and demand scarcity issues that affect the market periodically, an ounce of gold or silver will buy just what they always have.

In ancient Rome an ounce of gold bought a suit of clothes, (Robe, belt, and shoes) just as it will today. A hundred years from now It won’t matter what the price is in US dollars or any other currency, that same ounce of gold will have the power to purchase a suit of clothes.

The same thing can be said about silver. In 1912 a loaf of bread cost a nickel. A silver dollar would have bought 20 loaves of bread then. Today bread is about $1.00 a loaf, unless your getting the really fancy stuff, but none of that was around in 1912, so compared to just a plain loaf of bread I maintain you can still buy about 20 loaves of bread for an ounce of silver. Check the price of an ASE on EBay. I just saw four of them sell between $18.50 -$19.77

cdavport
24th November 2008, 22:53
I still don't see "deflation" in my business. I own a hardware store, and receive price changes from True Value every week. Price increases still overwhelmingly outnumber decreases in both number and percentage. About the only thing I see as far as deflation have been commodity items, such as building wire (copper), pvc pipe (oil), etc.

Maybe it is just a lag in the market and these price decreases are coming, but they haven't made it here yet.

JoeSixPack
24th November 2008, 23:05
There is deflation in financials and commodities, but not necassarily in manufactured goods. As companies lay people off, they produce less, but some things are still needed. These things will get more expensive.

Commodities will deflate until they are no longer worth extracting/growing/producing (i.e., silver at $4 an ounce- howm many mines will close?). Then we will double up on substitutes, and alternates, or fight for what is left- inflation.

Finally, another possible scenario is total collapse of confidence in the dollar, regardless if the times have been inflationary or deflationary. And, deflation can turn to deflation very quickly, especially with the panicked pumping in of dollars to a dying system.

ricm123
24th November 2008, 23:55
I still don't see "deflation" in my business. I own a hardware store, and receive price changes from True Value every week. Price increases still overwhelmingly outnumber decreases in both number and percentage. About the only thing I see as far as deflation have been commodity items, such as building wire (copper), pvc pipe (oil), etc.

Maybe it is just a lag in the market and these price decreases are coming, but they haven't made it here yet.

The price decreases (other than gasoline) have not made it to me yet either.
Groceries are still climbing.
Utility costs went up with spike in oil; they have not come down.
Local gas stations still charge $4.00 for K1 kero (in my town).
Medical / Dental costs are rising.
Homeowners insurance keeps going up. Auto insurance is about the same - (my cars are older and worth less...)
Yet USD is at almost 2 year high? (www.ino.com)
The list goes on... my wallet is getting whacked.
I'm learning why they call it depression.

mizou
25th November 2008, 01:04
[QUOTE=TomGray;23628].... If the money supply shrinks, due to the vast amounts of currency lost in the credit market, and we go into a deflationary spiral, then I am afraid most of us (myself certainly) are lost.

Deflation is so scary that, IMHO, the Fed will do ANYTHING to fight it.

Hi Tom,

I agree with you about the deflation being scary, however I would like to understand why you think that PM holders wouldn't benefit from this deflationary scenario?

Mizou

hiyosilver
25th November 2008, 01:08
I'm learning why they call it depression.


I know what you mean.... sometimes I feel like the silver market is in manic depression....in the attic one day, and in the basement the next....maybe I ought to invest in some lithium....:D

thowze
25th November 2008, 05:42
Nobody can honestly say just how bad things will get. And while I love to make predictions, my forward vision keeps getting shorter and shorter. We're now at the point where its hard to guess what the next day will bring. Every day is a new surprise



Exactly. Especially when just less than 5 months ago oil was at $145 a barrel and inflation was running rampant. Now prices are falling faster than ever with deflation in gear.

This is definitely uncharted territory we are in.

cugir321
25th November 2008, 07:39
I'm watching bulk food....there was a 4 % drop from the previous week. We shall see. I don't think it's going much lower. It could. Early 1960's I believe income was about 100.00 a week. Basic poor man's food would be about 15.00 (at present prices, rice and pinto's) a week. I'd guess it would be about 3-6.00 converted to 1960's levels. I can't see it going to 5-10.00 (at todays levels) for a week's supply of rice and pinto's.

Rice 22.39 for 50lbs at Sam's club.....11/22/08

If it goes a lot lower think of the implications....a lot of farmers are going to bite the dirt. Deflation will cause mass unemployment. I bet the government would support prices. We have to have food.

Aksura
25th November 2008, 10:17
Commodities will deflate until they are no longer worth extracting/growing/producing (i.e., silver at $4 an ounce- howm many mines will close?). Then we will double up on substitutes, and alternates, or fight for what is left- inflation.

Finally, another possible scenario is total collapse of confidence in the dollar, regardless if the times have been inflationary or deflationary. And, deflation can turn to deflation very quickly, especially with the panicked pumping in of dollars to a dying system.

i remember someone in this forum predict that after election or soon afterwards, there will be a deflation follow by a hyper inflation.