Inflation and hyper-inflation

[bankedout]

Has anyone noticed inflation in their lives recently? I have noticed significant food price changes lately. Also gasoline is creeping up.

One of the ways for a borrowing nation such as ourselves to deal with debt is inflation. It's almost certain we have to take this path to deal with our current debt load and deficits.

Are there warning signs of a shift from inflation to hyper-inflation? I have this feeling that we are on the brink of the dollar collapsing in value dramatically.

Has anyone else noticed anything, or am I just being paranoid?

[dg]

Go look at what silver is doing (up from 28 to 34 in just a couple of weeks). Oil prices are up even with oversupply! The clock is ticking ...

[sd]

No, you're not being paranoid-
Wages generally are not rising, and in many instances are decreasing- i.e. loss of income,loss of jobs being available, , reduction in benefits, increased premiums for insurance etc, and as you noted, gas and food prices are on the increase. And have you had any medical "procedure " lately"? How about the state and local tax bill- Any reduction there?
My insurance seems to find that they will only pay a portion of the bill once entirely covered- leaving the remainder to be picked up by the policy holder.
Cities and states are in a bind, and trying to "balance" their bloated budgets in times of declining revenues, are likely trying to find ways to continue to tax the homeowner ever higher, and small business as well. The average citizen does not feel they are "prospering" would be my belief- They are just trying to keep the status quo - and their nose above water.

I've increased my garden area 30% this year-
Have 0 credit card debt, and am trying to increase personal savings. (Not much left over) And maxed out the IRA. Don't really know if any of it will do any good in the long run- the gov't finds ways to serve their own purpose. However, if we don't task ourselves to take what defensive measures possible, we become the first to suffer the consequences.
What you see going on in Wisconsin- you'll see across the country in the year to come as people wake up and find the American Dream has eluded them despite their best attempts to find work, pay increased costs on many fronts- college tuition, , credit cards,medical- etc, etc, etc. Housing is perhaps the one area that has not risen in the last few years.
While we're not the middle east contagion of unrest-yet- we're certainly an economy under serious pressure, whose peoples have been led to this condition of decline by the financial mismanagement and bloating of gov't, attrition of jobs, and reduction in quality of life- and more importantly- in the lessened belief and faith that success is theirs to grasp if they will only try.
We can't visualize the "big picture" until years after the fact-circa 2025- when historians will write it up as the largest socio-economic shift of power that ever occurred in such a short period of time . And our gov't only accellerated that change by plunging us deeper in debt .

Feels good to vent- SD

[bankedout]

Having the capability to raise some or all of your own food will certainly be beneficial in an inflationary era. Bullets and arrows + seeds could be good investments. Maybe even fishing equipment.

I know both of you have wood as a source of heat for some or all of your needs. That may be beneficial if you can no longer afford to buy heating oil/propane/natural gas/electricity.

I'm considering taking out the contribution portion of my roth ira account and looking at some of the things mentioned above as 'investments' for my future.

The remaining portion of money in that account I cannot withdraw tax free. I have to wonder if that would be better off in a foreign currency ETF such as FXF or FXS in case the USD implodes in value.

I have little faith in traditional investments for the long term. Is it better to own farming implements or stocks going forward?

We shall see.

[dg]

Libya might be the trigger. All the markets are deep in the red today. Gold and oil are up; but silver dropped today probably because of such steep growth yesterday.

My view is 6 mo to a year of self sufficiency. My pantry is getting stocked quickly (using every sale). One of the toughest problems to face might be lack of electricity, because of our needs for refrigeration and freezers. I hate even the though of spam, but canned meat and powdered milk might be a way around needing freezers and refrigerators for the short term. And chickens for meat might be a longer term approach (if I can get over thinking of them as pets).

[ira85]

Inflation a threat? There is also considerable concern about deflation. Housing sales data came out today showing another drop in home values. There seems to be momentum/necessity for state governments to cut spending, which will cut incomes, and increase credit delinquencies. There are lots of proposals for the federal government to cut spending. Government spending is someone's income. Any meaningful cuts reduce GDP. We have lousy demographics as the population ages and the ratio of retired pensioner to working wager earner gets worse. And the wages of that worker are being squeezed hard. Gary Shilling's new book forecasts a decade of slow growth and deflation.
We might have a combination of credit de-leveraging, repeat recessions, falling home values, AND inflation for energy and food. Not a happy prospect.

[dg]

WHY is the nasdaq green today when all the other major indexes around the world are red? What am I missing?

[bankedout]

To ira:

Has there been any time in our history where deflation occurred? I thought inflation was the norm. With current monetary policy I would be shocked if deflation became a reality.

[dg]

I too would be very skeptical of the possibility of deflation. After all, the reason the government turned to fiat currency in the first place was to have another way to tax the world. Deflation would actually tax the government!

[ira85]

There have been 3 periods of major deflation in US history, the Panic of 1837, the Great Sag of 1873-96, and the Great Depression 1930-33. The experience in Japan since 1990 is the cautionary tale most applicable to modern America. An asset bubble burst, resulting in a stock market crash and real estate crash. That led to a spike in bankruptcies, insolvent businesses and insolvent banks. Cheap imported goods from China were priced below the cost of domestic producers, leading to low industrial output and rising unemployment. The government has tried many rounds of quantitative easing with only temporary benefits. The populace hords cash out of fear of the next recession.
If our govnt stops quantitative easing, we loose that stimuls. Higher energy costs could act as a drag on the economy. Layoffs of state and local government employees and teachers could also be a drag on the economy.
So it seems to me there is currently a battle between the forces of inflation and deflation. The Federal Reserve is clearly pushing to fight deflation and is willing to risk inflation. They want to try to keep us out of a Japanese style pro-longed deflationary period. So they are printing money, adding stimulus, hoping to keep GDP positive and reduce the risk of deflation.
So far, it doesn't seem to be helping the housing market. Credit is tight. First time home buyers are scarce. Housing values are down each year for the past three years. Lots of people owe more on their mortgage than the current market value of the house. That makes it hard to sell existing homes, and helps keep foreclosures running very high. That's what you'd expect in a deflationary environment. We have it in housing. Let's hope it doesn't spread to the general economy. The stock market market crash that started the Japanese deflation was in late 1989. More than 20 years later, they are still trying to dig out of that hole with no end in sight. This Wall Street Journal article notes Japan experienced year over year deflation as recently as January 2011. They are now struggling with increased energy costs in an otherwise deflationary environment. online.wsj.com/article/SB10001424052748703842004576163283666388732.html?mod=googlenews_wsj
The demographics in the US aren't as bad as Japan, though they are part of the problem. And our central bank has been more willing to stimulate without restraint. Will it be enough?

[bankedout]

Thank you ira for sharing that information. I'll watch for signs of a shift in either direction. For now I do see signs of energy and food inflation. There was also a report on the news that with cotton prices so high, we should expect significantly higher prices for clothing and other cotton based products in the future. However that will create incentive for people to grow more cotton, so perhaps that is only temporary.

[ira85]

On a local level, Flint, Michigan, Detroit, and Braddock, PA would be good examples of deflation. High unemployment lead to high foreclosures, high vacancy rates and bankruptcies. Falling property tax receipts led to cutbacks in city services and more layoffs. Real wages dropped, home values fell, and standard of living dropped. Businesses failed and led to more layoffs. The deflationary spiral fed off of itself. The solution to deflation is hard. Who has an answer to mend Flint, Michigan and restore prosperity?

[bankedout]

I'm not sure about restoring prosperity, but I did see on the news that someone was planning to buy worthless city lots in Michigan and convert them to agricultural use.

I was thinking true deflation would cause prices in general to be lower. Not just real estate. Consumer goods, energy, food, pretty much everything.

Today the Fed did acknowledge that there is Energy & Food inflation. Although they are claiming it to be temporary in nature. We shall see.

I know it would be a lot easier to pay our debt if the currency was devalued. I just wonder if there is any other viable solution.

[sd]

"restoring prosperity" for many communities is likely not to occur in the near future, and perhaps not even in the long term.
Restoring implies going back to the original condition, and that unfortunately will not be the case for many people and communities.
I hate to be so negative, because I once believed that by your sheer will , effort, and perserverance, you would not simply survive, but succeed. In other words, the individual had control of his destiny more or less. I now recognize that that was a naieve perspective based on a growing economy. True perhaps a few years earlier, I'm not so sure anymore.
There is no 'solution' per se- just a temporary measure of plugging the leaks, slowing further attrition. Looking for alternatives that usually come with lesser pay, fewer benefits, and a resigned perspective that says my future is far less promising than I thought it was 4 years ago.
The economic pendulum swings, does not care what is in it's path, nor the feelings of those affected. We should be prepared to meet our counterparts in Indonesia, India, Sri Lanka, Vietnam, Cambodia etc. We should share facebook pages with Yen Li and understand why his good fortune and gradual improved life style is not to 'blame' for our condition.
We see this swing occurring as the battle rages in individual states "blaming" Unions for not conceding to economic demands. The truth is , it's an economic flood that threatens at almost every level. It's the attempt to hold on and climb above the rising waters that threaten to sweep one's grasp from the tree you are trying to climb higher in.
What can we do? Nothing? it's beyond us ?

We brought this upon ourselves. We failed to adapt as an economy, to change and to be competitive- and then agreed that the lowest priced product was simply the best value-

Wasn't that called Nafta?

China graduates 6 million engineers a year, the Us 60 Thousand. On the open market, consider the dilution of 6 million vs 60,ooo in wages.

Saw a session on CNBC that said if Americans would only spend $68.00 on US made goods each year, that would increase employment by 200,000 new jobs. That's not even $1.50 / week. Suppose we said we'd spend $10/week on purchase of American made goods- vs the cheaper imports- That would be Millions of jobs added.

it's something of a catch -22 (joseph Heller ) (was this not a war situation?) As we feel we have less money to spend, we conserve more and buy the cheapest product to try to survive longer.

We are in a world economy and no longer compete economically. There is somebody just 7500 miles away that will gladly take my job if it was offered for 30% of my present wage, and be willing to work 7 days a week, 12 hours a day .
I hope he doesn't have access to the Craigslist ad my employer has running this past year! SD

[ira85]

Hey banked out, buying worthless city lots in Michigan and converting them to agricultural use, in principal, is great! Converting worthless real estate to a productive use would be exactly the right idea. The deflation in Flint and Detroit hasn't spread to prices in general because the deflation has been contained to that area. If the rustbelt problems were to spread across the country, the deflation would start showing up in other items because of falling demand. But things we get internationally, like oil, are driven by worldwide demand. So oil could go up even in a very depressed place like Flint.

Hey sd, you talk about buying American as if it would be a good idea. Have you seen the argument from the U. S. Chamber of Commerce that efforts to repatriate American jobs by anti-outsourcing efforts is bad business. Check this quote, "Replacing a job that is based in another country with a domestic job does not stimulate economic growth or enhance the competitiveness of American worldwide companies," wrote Chamber executive vice president Bruce Josten in letter to senators. Sounds like Gordon Gecko. Full story at thehill.com/blogs/on-the-money/domestic-taxes/120667-us-chamber-comes-out-against-senate-outsourcing-bill