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Deflation- the most dangerous evil

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  • Deflation- the most dangerous evil

    Most of us understand and are used to inflation. But deflation, the opposite of inflation is a paralysing force and a huge economic risk.

    Lets face it. The Capitalist system all but collapsed and is now only being held together by Number 8 wire through Government stimuli and the printing of unimaginable amounts of new money. Is there a risk? Will too much money cause deflation or will it give rise to its ugly brother - inflation? Both are possible.

    Let the words from one of my many contacts just received sum up what modern day deflation could mean.

    I'm sitting in Japan having just read your latest column. As a feet
    on the ground person here I can confirm deflation is at the moment
    rampant in Japan. Businesses can't sell products even at seriously
    discounted prices. Due in large part to Japanese workers not
    receiving the bonuses that they have grown used to and an atmosphere
    of apprehension about the future, job security ... !


    The pointy heads in the RB have to decide which course the economy will take, and higher or lower interest rates are not the whole answer.
    Last edited by OllyN; 20-01-2010, 10:44 AM.
    OllyN [email protected]
    Independent Property Consultant
    Residential and Commercial Solutions

  • #2
    That's 1/2 a post. Do carry on.

    By the way, what does one of your many contacts mean by a "feet on the ground person"?

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    • #3
      Printing money doesn't usually lead to deflation. IN the great depression and the earlier long depression depression was caused by demand destruction. Property prices and the value of goods dropped in value as less and less money was available. The melt down we have seen could have resulted in Depression if money hadn't been printed ( IE: repeat the mistakes of the 1930s) the printing of money that occurred this time inflated the economy.....the lack of inflation in the face of such prolific "printing" shows how serious the situation really was. The challenge now is extracting the world's economy from the current "life support" with out crashing the economy and timing the "extraction" in such a way as to limit unwanted inflationary pressures. The scary thing is for NZ is that when the FED, CEB and brits start to raise interest rates is what will that do to NZ's economy. Currently cash deposits I- have in the US are earning only 0.51% PA. and in Europe only just on 1%. When US and and European Interest rates go up NZ investments may start to look unattractive...my NZ cash deposits earn 5.25%. When interest rates outside of NZ start to get to around 5% I will either seek risk free rates of 10% in NZ or will shift the money to either Europe or the US.
      The mission of any business enterprise should include the aim to develop economic conditions rather than simply react to them.

      Comment


      • #4
        Originally posted by k1w1 View Post
        That's 1/2 a post. Do carry on.

        By the way, what does one of your many contacts mean by a "feet on the ground person"?
        Sumo Wrestler, no shoes ?

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        • #5
          I think it's derogatory to amputees who can only manage to be "foot on the ground people".

          Comment


          • #6
            At least we know his contact is unlikely to be a hooker

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            • #7
              Is this contact in Japan insinuating that painters, steeplejacks, window cleaners and other vertically inclined professions (not to mention hookers) are unable to cast good opinions on deflation and its dangerous evils?

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              • #8
                Not only that, but the man ironically states that he's SITTING in Japan. Which is it?

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                • #9
                  Childish jokes about a serious subject. Read this sober article and think again while carefully noting who the author is:

                  read it here: http://www.federalreserve.gov/boardD...21/default.htm
                  Last edited by OllyN; 20-01-2010, 10:38 AM.
                  OllyN [email protected]
                  Independent Property Consultant
                  Residential and Commercial Solutions

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                  • #10
                    Childishly mocking his redundancy, I think you'll find, Olly.

                    Comment


                    • #11
                      Reading the conclusion pretty much says "deflation is very bad but we're alright, Jack. Don't worry. We've got it sussed.". I don't quite see any statements agreeing that the capitalist system is all but collapsed, though.

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                      • #12
                        Originally posted by OllyN View Post
                        Lets face it. The Capitalist system all but collapsed....
                        I just wanted to save that statement for posterity.
                        Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

                        Comment


                        • #13
                          Originally posted by OllyN View Post
                          Childish jokes about a serious subject. Read this sober article and think again while carefully noting who the author is:

                          read it here: http://www.federalreserve.gov/boardD...21/default.htm
                          You did read this part of the article Olly.

                          "...I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small,..."

                          Anyway I am just happy that we got 3 kiwi's posted in a row.

                          Comment


                          • #14
                            Originally posted by OllyN View Post
                            Lets face it. The Capitalist system all but collapsed and is now only being held together by Number 8 wire through Government stimuli and the printing of unimaginable amounts of new money. Is there a risk? Will too much money cause deflation or will it give rise to its ugly brother - inflation? Both are possible.
                            Emphasis added.

                            Yeah... that sounds like a man who is sure of his logic.

                            (...better slip an "out" in there in the event I am wrong)
                            Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

                            Comment


                            • #15
                              Did you know that I'm somewhat of an expert on weather-prediction? I am 100% sure that it will either rain today, or it will not. Mark my words, Mark.

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