Daily Economic Update - An Inflating Baloon in a room of Pins

[Arraya]

The biggest needle is the credit contraction.  Credit is contracting consistently.  Actually Meredith Whitney said that about 1 trillion has contracted so far with over a trillion to go. 

[cz]

I am actually looking for a brief spike in oil prices again. 150 might be a bit high for me, but certainly 90 to 100 is not out of the question, and with 100 oil will bring probably 3.50 to 3.75 a gallon gasoline and it will push people back to the brink once more.

Because it also means higher heating oil prices(even as NG is falling, but much of the country still uses heating oil). It will mean higher food prices as inputs rise fast(like transport), etc ,etc..

My contention is that this ends much quicker than last time. Last time the inflationary rise lasted for over 18 months(possibly even 24 months). This time it will be measured in single months, like 3 or 4... And then right back to the deflationary spiral.. The deflationary spiral WILL COMPLETE one way or another. You can hold it off for only so long as the Great Depression proved. It took them all the way to the end of the 1930's to see any sign of reflation and then of course it whip sawed to crazy inflation during the war years. They even saw a good deal of rationing and shortages if I remember correctly...

FeelingWeird

I agree w/ Robert on that one, we'll ride (if its not ending already) the current "jobless recovery green shoot", as oil rises with the (hahaha) "recovery" - until some point - $100 is a psychological point (breaking 3-digits) that could easily do it (I'd agree with $90-$100 as the breaking point), where it collapses again.  I think it'll be a cycle of "recovery" - oil rises, crash - job losses/"demand destruction" - oil drops (but not as low as the last time), "recovery" (less so) - oil rises, crash... etc.  Each crash bringing a lower and lower "standard of living".

So far the government seems to be doing "all the wrong things", changing/regulating nothing, and I doubt that will change until/unless there are mobs inside DC threatening their end.

[feelingweird]

Wouldn't a dollar collapse be highly inflationary?

We have had this argument many times here and I'll get blasted for saying this, but a collapse of a currency is highly DEFLATIONARY for something else. The currency in question just ceases to be(though I am not saying that is what will happen to the dollar).

In a true currency collapse something else becomes much more valuable. So lets say Guy 1 is sitting on 1 billion FeelingWeird Dollar and Guy 2 is sitting on 50 ounces of gold. During the runup to currency collapse Guy 1 consistently sees his 1 billion dollars losing value as the guy holding onto 50 ounces of gold increases in value.

At the point of repudiation, the 1 billion dollars become worthless(falls off the inflationary scale and ceases to be) and the gold is worth a lot more, thereby making it deflationary ? As in it become defacto currency as there is much less of it compared to the previous currency. Currency becomes VERY hard to come by and my understanding is that makes it deflationary.

SOOOooo... To tie this back into my ascertion that we will see deflation and not INFLATION, what I see is that internationaly I feel there will be a repudiation of the PETRO DOLLAR(collapse) to be replaced by a new international US dollar(Red Back) that is denominated in Timber/coal/NG/Labor or whatever else the US is good at trading. This new international dollar would go through MASSIVE deflation compared to the PETRO DOLLAR..

Internally we will continue to trade the dollars we currently use(and probably a resergence of black markets and barter at the edges). If they decide to increase the dollars in circulation internally that would be highly inflationary. But you can't compare the two right now. The Petro US Dollar is ALWAYS IN DEMAND and is the hidden benefit that we US Citizens enjoy every single day of our lives. that is the miracle of the 1980's. DEFICITS DO NOT MATTER!! The foreigners will always cover us.. right??

Well not anymore.. That is the ultimate PIN..

Robert

[gin]

imo.. TPTB are keeping our mmf/savings rate pretty much at zero until all the mugs have
gotten back into the stock/bond markets.. then once again TPTB will pop the bubble..

market mugs are currently pimping money by sucking on the hind tit of these whores and enjoying it.. it's disgusting..

got out of 90% of my stock holdings in the fall of 2006.. been in mmf's and savings since..
sorry but ethically I could no longer participate in this farce until it's fixed.. if ever.. 

amongst mobsters when honesty/loyalties between themselves come up.. "hey, we're all honorable men here"