Biggest Sea Change of Our Lifetime! --- From inflation to deflation.

[cobra de capell]

Gala Issue: Biggest Sea Change of Our Lifetime!
by Martin D. Weiss, Ph.D. 12-22-08

The Fed, the Treasury and all major governments on the planet are throwing the kitchen sink at this debt crisis.

But their efforts are being overwhelmed by a monumental sea change — the shift from rising prices to falling prices, from booming asset values to crashing asset values, from wealth creation to wealth destruction, from inflation to deflation.

For my entire lifetime, and probably yours as well, we have been living with inflation — sometimes tame, sometimes rampant — but consistently eroding the purchasing power of our dollar.

Inflation pervaded every money decision we made or thought about making, every retirement plan or business model. Inflation was factored into our leases, our employment contracts, our budgets, our investment programs.

Now, all of that is changing; and it’s doing so dramatically! Suddenly, the polar opposite of inflation is taking hold in America: Deflation!

Suddenly, prices are plummeting — not just for real estate, but also for automobiles, appliances, clothing and gasoline.

From peaks reached just a few months ago to the latest bottoms, the price of oil has plunged 73% … copper has fallen 66% … lead and nickel are down 73% … platinum is down 66% … and wheat is off 64%.

Even the government’s slow-to-change, lagging index of inflation — the CPI — has caved in to deflation, falling by the most since the government first introduced the index in 1946.

These are not numbers that denote less inflation. They are hard evidence of outright deflation!

Suddenly, prices are plummeting — not just for real estate, but also for automobiles, appliances, clothing and gasoline.

From peaks reached just a few months ago to the latest bottoms, the price of oil has plunged 73% … copper has fallen 66% … lead and nickel are down 73% … platinum is down 66% … and wheat is off 64%.

Even the government’s slow-to-change, lagging index of inflation — the CPI — has caved in to deflation, falling by the most since the government first introduced the index in 1946.

These are not numbers that denote less inflation. They are hard evidence of outright deflation!

This is crucial for you: If you continue investing as you did in inflationary times, you risk losing almost everything. However, if you acknowledge this historic shift and make the right moves now, you’ll have the opportunity to build substantial wealth.

Snip........http://www.moneyandmarkets.com/gala-...fetime-3-28912
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Hmmmmm........sounds logical

Link includes......
Deflation Survival Briefing
with Martin D. Weiss and Jack Crooks
(Edited Transcript)
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One part of the transcript...

Jack: People think that since home values have already fallen so far, they must be near a bottom.

Martin:
I don’t agree with that view. Most of the price declines we’ve seen so far merely represent a recognition that the peak prices of the mid-2000s were a fantasy built upon “Frankenstein Financing” — wildly speculative credit terms such as option ARMs and liar loans. The hard-core declines in housing, driven by basic things like recession and unemployment, are just now getting under way.

Jack: How much further do you see home prices falling?

Martin:
My personal opinion is that that over half of the declines are still ahead. That applies not only to housing, but also to commercial properties; not only to real estate, but also to stocks and other assets. Consumer prices just began to fall in October. Outright contractions in the economy are just now getting under way. Deflation is still in its early stages. The wealth destruction has a long way to go.
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Here's an important part...

In reality, America’s First Great Depression wasn’t caused by what the government failed to do to stop it. Rather, it was largely caused by all the wild things the government did do to create the superboom in the Roaring ’20s that preceded it. They dished out money to banks like candy. They let banks loan money to brokers without restraint. And they encouraged brokers to hand it off to stock market speculators with 10% margin.

But if you want to see what happens when a government intervenes aggressively after a bust, just look at Japan since 1990. Japan lowered interest rates to zero, just like the Fed is doing today. Japan bailed out banks, brokerage firms and insurance companies, much like the Fed is doing here. Japan embarked on massive public works projects, much like President-elect Obama is proposing now.

But it did not end the deflation. And it did not prevent their stock market from making brand-new lows this year.

All it did was prolong the agony — now 18 years and counting.
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Yes, doom and gloom - but what will bring America out of this huge hole?

[Sharroll Celby]

I think that with the lowering of home prices, more responsible people will actually be buying homes in the near future.

[Dan40]

Don't worry, the change from private enterprise to Government owned and run businesses will cure the deflation problems quickly.........................

Dan

[cobra de capell]

Originally Posted by Sharroll Celby

I think that with the lowering of home prices, more responsible people will actually be buying homes in the near future.

True, but the ironic thing is that the government programs are geared to maintain house values versus allowing values to decline to a more reasonable level. Also, refinancing of those who got in too deep is now going south with that group starting to default once again, big time. Next, commercial property will be going south - in huge numbers with more banks going down.

[Ron61]

I fear the worst me be yet to come. This never all happened overnight and it isn't going to go away in a short time. I think as CDC stated, there will be more companies and banks fail in the next year as it is going to take a long time for things to really turn around. The whole world is feeling this recession. I hope that things start getting better soon, but from what I read and see, they seem to think next year will be worse than this year. I hope they are wrong, but there really isn't a lot than any one person can do about this. I see houses all around me that people are trying to get someone to take over the payments rather than have them foreclosed on, but so many have been laid off around here that no one can afford to buy anything they don't have to have. Now I see in the paper that people are turning in their pets to the animal shelters so fast they are overloaded and in Wyoming I think it was, ranchers are abandoning horses on Federal land because they can no longer afford to feed them. I really feel for the people who are sick or have lost their jobs as there is just no where for most of them to go for help.

Ron

[Scott S]

Originally Posted by Sharroll Celby

I think that with the lowering of home prices, more responsible people will actually be buying homes in the near future.

I think it is the responsible thing to do is burn your home collect the insurance money and build a new home out of wood.

Preferably wood from Oregon

Scott S

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Right on Ron - basically, the government has taken over a huge part of the economy and we all know what happens when the government is directly involved in production activities. This isn't a bank issue or problem, it's a government issue and problem - no bailout would have been the better course of action.

Study up on Mussolini, who tried this before...


"In actual fact, it is the State, i.e. the taxpayer, who has become responsible to private enterprise. In Fascist Italy the State pays for the blunders of private enterprise. As long as business was good, profit remained to private initiative. When the depression came, the Government added the loss to the tax-payer's burden. Profit is private and individual. Loss is public and social."

-Under the Axe of Fascism, by Gaetano Salvemini, p. 416


By the way, Deflation's great if you have cash and no debts (That's me). One of the nice side effects of inflation is a fixed mortgage becomes easier with time. Incomes rise with inflation, but the fixed mortgage stays the same. With deflation it's the opposite.

My dollars will be worth less, but will buy more if deflation continues.

[Wes Tausend]

...

I heard the second wave, the big one, of home-ownership catastrophy is still coming. Sub-prime mortgages were understandably doomed to fail. But the next wave is the majority of responsible home mortgages that are either prime ARM or balloon-due. Not everyone got out of these contracts that seemed moderate only a year ago and this market represents a huge segment as opposed to sub-prime. Most folks assumed they could refinance at least at the equity they had built up over 10-15 years. But as CDC mentions, the bottom is falling out faster than responsible buyers could imagine. Some will lose their jobs, jobs they've had for 10-15 years.

I'm like CDC in that I'm sitting with all stuff paid for. But I can already see that real estate taxes are going to jump big time. Some people will reduce, or eliminate, most vehicles. I have an old, but good, seldom driven truck that will hold, or even gain, some value over deflating vehicle prices because it will remain a useful necessary device in any economy when everything else is pared to the bone. But who will pay for highways? Expect license tabs to skyrocket.

When my wife and I were a young couple, inflation was our friend, partially paying off (diminishing) fixed long term liabilities with time. Retirement was foreboding with fixed income and the cost of living going up or inflating. Does this deflation mean my retirement income will go further? Probably not if I can't afford to pay the taxes in my paid-for home or license my truck to pull my camper somewhere to live as a squatter.

Wes


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[cobra de capell]

But who will pay for highways? Now that is already a problem with people not driving as much the government agency that handles funds to maintain highways ran out of funds recently with congress having to step in with more funds from the general fund.

Washington is printing money like there is no tomorrow. I'd guess that we are in for 5+ years of deflation. I'm wondering where we go from that point. Bringing more oil sources on board in America seems off the table, trillions have been lost - at least on paper with billions in actual money lost. Major auto companies are headed for a fall. Investment and banking companies will all end up being owned by the people through tax funds. More tax funds will be needed soon and at all levels - California is basically broke, along with other major states.

Bottomline is that around mid-year 2009 we will all be in a screaming mood, as depicted below.......

Of course, some of us will be screaming louder then others - stand in line!

[Dan40]

cdc,
The strange things is they are NOT printing money. They are just conjuring it up. Our National Debt is over 10 TRILLION now and has been in the TRILLIONS for some years.
Yet, I asked the Gov. Printing office how much actual American money was in circulation now and what is the total amount they have printed in their history.
If I remember right, in circ. around $160 BILLION. Total printed in history, JUST under $200 billion.
So we did a $700 billion bailout with,,,,MAGIC.

Dan

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Correct, the 'new' money is actually just a notation on government books (a debit) with a credit noted to whoever gets it.