Deflation

  By Mystic | June 27, 2012 - 04:39 | ,

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Written by: Mystic on June 27, 2012.
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  • Lyle

    I like the analogy. I understand best with analogies and metaphors. Feels like I have much more understanding of the deflation / inflation business. Thanks!

    Now I’m envisioning the bottom of the iceberg displacement decreasing until the whole thing flips over and the top is under water. :)  Maybe I should just leave it alone aye.  :)

     

    • http://overthepeak.com/wordpress/ Mystic

       Yes, analogies, generally, can only be pushed so far (and I think I may have over-done it slightly with the iceberg anyway).

      • bibi

         Great video . Thanks for the explanations.
        But all we should care about as citizens is what’s above the water line.right?
        So if it looks like Hyperinflation at the top of the iceberg , like you mention , how do we position ourselves for protection?

        • http://overthepeak.com/wordpress/ Mystic

           I’ll give you five years warning of any hyperinflation ………… (nothing yet~!)

  • Nascentmind

    Thanks for that video .  The two charts up above. Show to me anyway. That the engine of  inflation 
    ran out of fuel in 02 like a spluttering aircraft engine. The engine failed in o7 .
    With falling equity take we are in big trouble?  

     

    • http://overthepeak.com/wordpress/ Mystic

       When this has happened in the past, the `people` always have had to pay (for the loans that have gone bad).
      This time is a Biggy~!!
      I don’t think you can afford it, but they will try and make you pay.

      (If you can’t afford it ………… that will be very very bad indeed~!!)

      • Nascentmind

        From this video and deflation i started to dig about and learnt a new word.
        Hypothecation. (I don’t know, what it really entails  yet. Going to take me little brain weeks)
        It don’t look good.

        • http://overthepeak.com/wordpress/ Mystic

           Really ………… don’t do it~!
          Hypothecation is one thing ……….. when (if) you get to Re-hypothecation, your head will explode~!

  • Tekkie

    I am a little lost to be honest following the “deflation” / “inflation” thing described in the video. This is how I see it… you have us (above the waterline) and the “system” or banks (below the waterline), i’m good with that except I think we have inflation below the waterline instead of deflation as proposed in the video. I think this because there is a nominal sum of £ (yes i’m English so will use pounds as example) in circulation at any one time, problem is that the banks are circulating the same pounds over and over again adding their cut to the value of that £ each time it is exchanged, the value of that £ on computers is “inflated” by the promise that it is paid back at face value plus some, problem is this, if it was ever attempted to be paid back there is not enough £ to cover the promise. So the government steps in and floods a few more billion into the system to get it moving again…. inflating again.. i think money inflates in promised value when it moves and deflates in actual value when it stays static????

    Therefore, isn’t the deflation above the water and the inflation below the water??

    By the way, good to see you back on top form Nick, I love your site (even if I struggle to get my head around some things from time to time).

    • http://overthepeak.com/wordpress/ Mystic

       No.
      This only shows your ignorance of what is going on below the waterline.
      The problem is, it is fucking complicated ……… and the only way I could teach you about it, would be if you agreed to drop any pretence about knowing anything about it (which I doubt you would be willing to do). ……………. ((I doubt it, because in your comment, you seem to want to tell me I am wrong and that is not the way to start a learning process, is it, eh~!?)).

      • Tekkie

        You seem to fully believe that you know it all, quite a bold attitude you have there Mystic. Sorry my view questioned yours, even if I did point out that I didnt fully grasp the concept of what you were saying :s

        Can you grasp that it really doesn’t matter if a currency or system is inflating or deflating as long as all currencies are doing the same with the exception of a select few? It doesnt matter how complicated you think it is… it really isn’t – its very simple actually. Perhaps one day you will discover that when you truly are a Mystic ;)

        Until then… keep number crunching and going around in circles ;)

        • http://overthepeak.com/wordpress/ Mystic

           Eh-oh …… laa laa li laa …… big hug …… Teletubbie Tekkie …… again again …. laa  laa li laa~!

  • windman3

    Interesting.

    A little bit oversimplified as this is a complicated issue. And the definitions of inflation and deflation are not exactly fixed in stone. A point you have made on several occasions. And I don’t have time to go into “good deflation” such as the price of iPAD’s going down and perceived “Bad deflation” as asset prices go down. 

    The future does look a little grim as the Great Credit Based Consumers decide en masse to pay down or default  debt, and the Great Spender of Last Resort, namely the governments, have to pray to the God of Austerity. (Surely has to be called a religion, we believe this is the right thing and will lead us to prosperity stuff)

    One of the biggest problems to crack is the rentier class. The bastards extracting large amounts of money from the workers through simply owning property.

    But deflation we have and the Japanese disease is the name.

    Another sign of the times is

    http://www.bloomberg.com/news/2012-06-26/draghi-may-enter-twilight-zone-where-bernanke-fears-to-tread.html 

    “European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve.While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15″

    I guess they are trying to force the banks to buy up more government debt, as this is surely the only place left if the central banks charge banks to leave money on deposit. The bullshit about increasing the number of loans the banks would make is pushing on a string nonsense.

  • Blackstone100

    The question,Deflation what does it look like?
    100 odd years ago it was probably easily answered.

    chart data
    http://www.measuringworth.com/datasets/ukearncpi/result2.php 

    • http://overthepeak.com/wordpress/ Mystic

       Please explain what you mean (I have no idea~!)~?

      • Blackstone100

        pre 1900 ish  on the chart the blue rpi line is “jaggy” with short periods of inflation and deflation at regular intervals for hundreds of years.
        People must have known how and if these short deflationary periods would affect them.
        These days people fear deflation and few know what it really is. I am not one of the few.

        • http://overthepeak.com/wordpress/ Mystic

           One last try (by me).
          Please explain what you are trying to say.
          (being cryptic is just a waste of everyone’s time~!)

          • Blackstone100

            okay, its a question.

            Historically not all deflations were bad, I have seen them described as the good, the bad and the ugly.
            From the little guys (western) perspective.
            In your opinion, how bad, if we have a lengthy deflation period.
            scale 1=good 10=ugly

            • http://overthepeak.com/wordpress/ Mystic

               The more `bad` the deflation is, the more `ugly` it will be.

  • Toby

    Nice video. There is also big deflation in froggie caps! What happened?

    • http://overthepeak.com/wordpress/ Mystic

       Habits change.

  • Wilbick

    I have come up with a definition of inflation/deflation.

    Inflation is when the total amount of available wealth is increasing. Deflation is when it is decreasing.

    Any good?

    • http://overthepeak.com/wordpress/ Mystic

       Perfectly useless, unless you can establish what `wealth` is.

  • Agodina6

    Can you please explain to me why europe cant do what the USA did and give the banks a trillion dollars.  We have a 14 trillion gdp and seems like it would kick the crap of the can.  At least for a little while.  Like the US.  If they could indeed get the mechonism for it.  Thanks ag

    • http://overthepeak.com/wordpress/ Mystic

       Europe is not `The United States of Europe`, with the equivalent of a Paulson, Geithner and Bernanke.

  • extremebuilder

    Afternoon Mr Mystic, 

    Quietly cogitating away here, and getting more pissed off with TPTB every day.
    So Barclays et al have been lying and stealing. I`m not shocked, nor do I suspect any of your goodly viewers are. 
    We have been lied to and manipulated all of our lives ( 60 years here). Our slavery is complete, there can be no escape without we destroy the good with the bad.

    The only solution is to end inheritance.  All of it, for everyone. 

    They have found a very large treasure trove of ancient coin under a hedge in Guernsey/Jersey? All of that accumulated wealth and power was lost from that society, all of the effort and work that went into making that pile of coin was lost. All of the future wealth that this treasure could have seeded did not happen.

    That is what inheritance does, it takes wealth(?) out of circulation. Stop it.

    Happy Thursday everyone x

    • http://overthepeak.com/wordpress/ Mystic

      I know what you mean ………… but, unfortunately it is a bit complicated -
      French farming is an example of what can go wrong if you get inheritance `wrong`.

      Imagine a small farm ….. whatcha goin’ to do wiv it~?
      Imagine a big farm …… whatcha goin’ to do wiv it~?
      Imagine a bakery …… whatcha goin’ to do wiv it~?
      Imagine a garage …… whatcha goin’ to do wiv it~?
      Imagine a corner shop …… whatcha goin’ to do wiv it~?
      Those are very tricky, but I bet you want Bill Gates’s money~!

      What you gonna do with Microsoft~?

      Just to give you something more to cogitate about~!
       

  • windman3

    More deflation

    http://www.bbc.co.uk/news/business-18587254 

    “Bank of England governor Sir Mervyn King has said he is “pessimistic” about the short-term prospects for the global economy. He also said he had been struck by how much the situation had changed in the past six weeks. Sir Mervyn said he was particularly concerned about the worsening situation in Asia and other emerging markets.

    His comments followed official data showing the government borrowed more than expected in May.

    Excluding financial interventions such as bank bailouts, it borrowed £17.9bn, compared with £15.2bn in May 2011. A 7% fall in income tax receipts contributed to the rise in borrowing.”

    Expect more QE next time from Merv, as somebody has to buy the debt.

    So what is Merv’s expert opinion on the outlook for the EuroFiasco

    “”There is just enormous uncertainty out there, I have no idea what is going to happen in the euro area.”"

    Oh dear!

    Surely as One of Our Leaders he should be coming out with vague palliatives statements, not just

    “I am friggin clueless”.

    He needs to review a few of Greenspan’s speeches. But maybe no! Actually I find this new approach from the Leaders quite refreshing.

    “We are friggin clueless”

    And here’s another little chestnut from the so-called spin-doctors.

    ‘A spokesman for the Treasury said: “It is too early in the financial year to draw conclusions about the year as a whole, especially as today’s public finances data include a number of one-off factors and temporary distortions.” ’

    Yeah, right.

    But why do we have a stream of one-off’s and temporary distortions dating back five damn years? Is it maybe because the one’off’s are more like “many off’s” and the “temporary distortions” are turning into “permanent distortions”?

    Shrinking.

    “Official data released on Thursday is expected to confirm the economy shrank by 0.3% in the first three months of 2012.”

    “We are friggin clueless”.

    The New Political Revelation.

    • http://overthepeak.com/wordpress/ Mystic

       That was almost poetic Windy~!

      • windman3

        Thanks!

  • windman3

    The Danish tax payers would not be interested in paying for debts they had not incurred.

    http://news.bbc.co.uk/2/hi/programmes/hardtalk/9732877.stm 

    • http://overthepeak.com/wordpress/ Mystic

       In that case ……… `Blame them~!!`.

  • pw

    “Where Monetary Systems and Banks meet we create a Bastard” 
     Money is not Credit and “Monetary Inflation/deflation” is not the same as “Asset Inflation/Deflation!” but the end result is probably the same.

    I believe the incorrect use of the terms “Money” & “Credit” are at the heart of the Inflation vs.deflation debate! We need to know what we are Inflating and what are we Deflating? 

    Money and Soverign Monetary systems are not synonimous with Credit and Banking Systems and in my view they should not be interchangeable. 

    Money is fiendishly difficult to describe but in essence; Money allows you to assign a value to an asset (price discovery). Money is a value of a SURPLUS! 
     
    Credit is issued by a banks based mostly on notional assets or no assets. credit is the value of a DEFECIT! 

    By employing techniques like QE (buying debt with new currency), LTRO (remodelling), Twist (remodeling interst rates), ZIRP (remodelling Interest rates) and funding it with new Credit (created by cenral banks),  the central/banking system has distorted the “notional” value of the currency that values assets. It has changed the risk reward structure and disguised increases in the money supply. This has all been done in order to buy debt and stave off insolvency of the banks which support the monetary systems. 

    The Soverigns have allowed this to get to a level that threatens a rapid devaluation of the value of the currencies which will lead to inflation and possible hyperinflation if confidence is lost. The only reason inflation has not charged ahead is because the central banks are buying government bonds which is keeping inflation down for now by taking value from tomorrows currencies. 

    This dilution of value of the currencies will also drive commodity inflation where the have’s using another monetary system attempt to derive more value from the have nots. Again this has not emerged to its full extent yet as we are still deflating the economy by printing to prevent insolvencies and avoiding the asset writedown which affect true value.

    Currencies are backing up in the silos (inflating), the inventories and margins are run down (asset deflation), economies are continuing to slow (Stagnating), treasuries will borrow their own banks money until their currency is dead (Monetary 

    Inflation hiding using banking notional assets), deflating in interest).

    Insolvencies are being monetised, this simply devalues the currenies (monetary inflation), so its inflation we will have and what we should be debating is over what time scale we do the readjustmen

    Any road, here are some of my assumptions around the thinking that has brought me to this Surplus vs.debt Inflation vs.deflation thing:-

    Money and Monetary Systems………………………………………………………………………………….

    Money is a generic accounting used to value an assets e.g. currency, gold, propety, services etc. 

    Money Systems have currencies like the Renminbi, Dollars, Euro, Yens etc.that are used to facilitate trade of assets asynchronously.

    The value of an assets is ultimately variable but firmly linked to the monetary system that is used to value it. 

    Monetary Systems compete with each other to value assets at a level that is advantageous to the monetary systems owner.

    The amount of currency in a system should be constant, the value should vary to recognise the appreciation and depreciation of the assets they value.

    A monetary system usually resides at a fiscal level within a national boundary (unlike the euro). 

    The monetary system exerts control by deciding what can be called an asset and by varing its circulation to maintain liquidity in the system. 

    Banks and Credit………………………………………………………………………………………………..

    Debit and Credit are banking tool tools to record the assets held by the bank and customers.
    Credit is a journal entry recording an increase in assets.
    Debit is a bill for products recieved, a decrease in assets.
    Cash is a transferable credit issued by the bank, created/audited by the central bank but underwritten by the state.

    Asset backed debt is notional where banks are concerned and as such is limitless (unlike the assets:))
    Individuals and corporate entities compete with each other to increase the credit available to them.

    One question: If the State is ultimately Accountable for the Monetary system what could be the motive to deligate responsibility to the banking Oligarchs?

    • http://overthepeak.com/wordpress/ Mystic

       As long as the plan here was, to make sure no one could follow what you saying ……. I would say that comment was spot on~!

  • PW

    Ok lets go slowly:
    money allows a value to be assigned to an asset. An asset is surplus, its desireable, its tradeable in the future..wealth!

    Credit is a loan assigned to an individual. Its a deficit that must be paid back with the a surplus like the ones mentioned above.

    Ok so far?

    • http://overthepeak.com/wordpress/ Mystic

       Nope ….. Sorry too precise.

      I am not saying you are wrong …… I am saying that if you wish to communicate, you have to do so in a way people can go along with.
      (neither too long and blathery ……….. or too precise (which will always lead to nit-pickyness).

      Just chat it out in a way that is understandable to most people.

      • pw

        Ill give it a go, its never been a strength of mine..
        Ok what is bothering me on the deflation front is the relationship between money and credit. Generally speaking; The buying of stuff using credit leads to an increase of liquidity and a subsequent decrease when paying the credit back. 

        When buying stuff with money (savings) this increases liquidity without the subsequent decreases.

        Now we know that the credit cycle went into overdrive, the saver
        s saved loads and the others did not, so additional credit (any funds eminating from the central bank QE, LTRO) was used to bailout out the insolvent… That said…

        Why are we seeing a rapid increase in liquidity ( available money) and yet do not appear to be benefitting from it? Are we saying there is no market because of ???  so we have deflation! or is it because we have inflation but it is masked by a broken monetary system?

        • http://overthepeak.com/wordpress/ Mystic

           By liquidity, I guess you mean money flowing through the economy.

          Ah but, in the second paragraph I am not so sure.  Liquidity here looks like money velocity.

          Paragraph three makes no sense (that I can see).

          Para four – `more available money`~??   Whad’ya talkin’ bout~?? 
          Talk to me about all this `more available money` stuff~!
          Like …… what is it …. where is it ….. etc.~?

          (note:  if you think you have already told me about it …… let me assure you, that you haven’t~!)

          • pw

            Ill try doing this with observations/questions to see if it works better Nick (can I call you Nick or do you prefer Mystic?) My name is Dec. short for Declan.

            1.If a treasury prints more currency to pay its workers we get inflation! Has the currency has been devalued by the quantity in circulation.?
            2.If a bank creates more currency via bank credit we get inflation and when it is paid back we get deflation! Do we get a transitory devaluation followed by a revaluation of currency?
            3.What if more currency was created by bank credit that was then never paid back! Do we only get the devaluation.

            Ive tried to leave the word “money” out of it for now as my definition seems to be causing confusion in my delivery.

            • http://overthepeak.com/wordpress/ Mystic

               I’ll go for Nick (although I don’t like it much).  I would go for Declan (because I don’t like Dec much).

              First, let me say this is very hard for me, because I have to find out what you know and what angle you are coming from.

              1. Shows you don’t know much about much.  If you did, you just wouldn’t say things like that.
              There is a chance that you understand MMT and that may make sense of 1. (but I doubt it).
              I guess it is best for me to ask you to go away and come back with some details on a Treasury that is printing more currency to pay its workers …… and then we can discuss that~!?

              2.  Makes more sense, but is kinda confused.
              Question – “If a bank creates more currency via bank credit…” …….  More currency than what~?

              3.  Similar question to Linda’s last night.  Same answer – It is not so important compared with 2. (but I will answer it ….. when we have dealt with 1. and 2.)

              Go for it Declan. 
              Keep those little green cells whirring away~!