Dot-to-Dot Deflation
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Hi Folks,
Oh I see, they’ve renamed it:
Negative inflation in Greece from deep recessionInflation in Greece was negative last month for the first time in 45 years. That is because prices are being pushed down by the country’s deep recession. Consumer prices fell by 0.2 percent from March last year. Greece is in its sixth year of recession, hit by austerity policies imposed under a bailout from the European Union and International Monetary Fund which is keeping it from going bankrupt. The government is forecasting the economy will contract by 4.5 percent this year. Data on Tuesday also showed industrial output fell 3.9 percent year-on-year in February after dropping 4.2 percent in the previous month, underscoring the grim state of the Greek economy.
“Negative Inflation” 😆 Anything but ‘deflation’ eh?
L,
Sid.Hi folks,
Update:
Welfare reforms ’cause £19bn hit’
Press AssociationPress Association – Thu, Apr 11, 2013 (Via Yahoo)The Government’s raft of controversial welfare reforms will take almost £19 billion a year out of the UK economy and hit northern England hardest, researchers say.
Residents in the Lancashire resort town of Blackpool will lose out more than anywhere else in Britain when changes to the benefits system kick in, academics at Sheffield Hallam University said.
Former industrial areas including Middlesbrough, Liverpool and Glasgow will also be disproportionately affected. However, wealthier areas, predominantly in the South, such as Cambridge, Surrey and the Cotswolds, will see the smallest financial losses.
Researchers assessed the financial impact of changes made by the Conservative-led coalition to housing benefit – including the so-called bedroom tax on public housing tenants who have unused rooms – disability living allowance, child benefit, tax credits, council tax benefit and several other hand-outs.
Professor Steve Fothergill, from Sheffield Hallam’s Centre for Regional Economic and Social Research, led the study, which was based on a range of official statistics. He said: “A key effect of the welfare reforms will be to widen the gaps in prosperity between the best and worst local economies across Britain. Our figures also show the coalition Government is presiding over national welfare reforms that will impact principally on individuals and communities outside its own political heartlands.”
Generally, the more deprived the local authority, the greater the financial impact, Prof Fothergill found. He said the three regions of northern England – the North West, North East and Yorkshire and Humberside – can expect to lose a total of £5.2 billion a year in benefit income. Much of the south and east of England outside London escapes comparatively lightly.
Researchers calculated the average amount that every working-age adult stands to lose in each region of Britain per year. This average figure allowed them to gauge how much each area would be affected.
Working-age residents in Blackpool will lose an average of £910 each through welfare cuts. Westminster, with its high cost of living, will be the hardest hit London borough. Residents will be £810 out of pocket on average.
However, the Department for Work and Pensions said the reforms will benefit the vast majority of working households. A Government spokesman said: “Around nine out of ten working households will be better off by on average almost £300 a year as a result of changes to the tax and welfare system this month. Raising the personal allowance to £10,000 we will have lifted 2.7m people out of income tax since 2010.
“Our welfare reforms, including reassessing people on incapacity benefit, will help people back into work – which will benefit the economy more than simply abandoning them to claim benefits year after year. These changes are essential to keep the benefits bill sustainable, so that we can continue to support people when they need it most across the UK.”If that’s not deflationary then I don’t know what is. It will be interesting to see how those de-industrialised economies in the north of the UK cope as those benefits acted as a government subsidy to keep the local economies running. These cuts coupled with the abolition of other local industry subsidies such as Yorkshire Forward mean there could be some interesting times ahead up north. The north/south divide could end up as a full blown two-tier economy, a micro version of the EU with parts ot the UK like Greece and Cyprus and others like Germany. Three guesses as to which parts…
L,
Sid.Hi Folks,
What’s this, a case of Dutch [strike]Elm[/strike] Debt disease? :ohmy: :
The Telegraph,
By Ambrose Evans-Pritchard 6:49PM BST 01 May 2013Debt-crippled Holland falls victim to EMU blunders as property slump deepens
The eurozone’s slow suffocation is going Dutch. Each extra month of slump caused by Europe’s negligent authorities is pushing Holland closer to a debt-deflation trap.The coalition of Mark Rutte has belatedly woken up to the danger. Last month it retreated from pro-cyclical tightening, delaying €4.3bn in budget austerity. By then Mr Rutte’s totemic worship of EU deficit targets had invited the ridicule of the official Bureau for Economic Policy Analysis (CPB), which said Dutch leaders did not seem to understand how private credit busts interact with fiscal cuts to create havoc.
“The Dutch government’s inability to acknowledge the damage done by austerity despite mounting evidence is a case of ‘cognitive dissonance’,” it told the Financial Times.
Yet this is not at root a case of botched fiscal policy. It is a case of misaligned monetary policy. The Netherlands offers a salutary lesson of what can happen to a rich sophisticated economy caught in a post-bubble crunch once it has lost control of its currency, central bank and monetary levers. This would have happened to Britain without the Bank of England, and the US without the Fed.
The Dutch crisis has crept up quietly, though hedge funds have been nibbling for months. Most people lump the Netherlands together with Germany, Finland and Austria, the hardline AAA fist-thumpers who dictate terms to others.
Unemployment was very low until the dam broke. It is now soaring as fast as in Cyprus. The rate has doubled over the past two years, jumping from 7.7pc to 8.1pc in the single month of March. The economy has been in recession since early 2011.
…
As in Britain – or Japan when it buckled in 1990 – there is a long-term housing shortage. Rabobank says the overhang of unsold homes is 228,000. That is bad but not disastrous. The crisis stems from rampant credit, not rampant building.
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Instead, the ECB has engineered a Japan-style liquidity trap. Broad M3 money growth has slowed to 2.6pc. It contracted in March. Core inflation has fallen to a record low of 0.4pc, once austerity taxes are stripped out. This is one shock away from debt-deflation.
etc.
While they use it as an excuse to denounce federalisation (ironic they do not mention US states going bankrupt!), they at least mention the words ‘debt-deflation’. Not surprising given the debt level and private consumption figures:
Now, which web site has been banging on about this for years already… :whistle:
L,
Sid.Actually it seems that Ambrose has a crush on the ‘d’ word, has he been reading TAE?:
Telegraph, By Ambrose Evans-Pritchard, 7:40PM BST 30 Apr 2013
Eurozone risks Japan-style trap as deflation grinds closer
The eurozone is one shock away from a Japan-style deflation crisis after a key measure of prices fell to the lowest since the launch of the single currency.The region’s core inflation rate – which strips out food and energy – fell to 1pc in March. This is far below expectations and leaves monetary union with a diminishing safety buffer.
“The eurozone is tracking the experience in Japan in mid-1990s. there is a very high risk of a slide into deflation,” said Lars Christensen, a monetary theorist at Danske Bank.
While eurozone core inflation was slightly lower in the aftermath of the Lehman crisis, the current figure is distorted by the one-off effects of VAT increases and levies linked to austerity. Adjusting for these taxes, the rate is now running at 0.4pc.
“The European Central Bank [ECB] should be concerned. If there is another severe shock, the eurozone faces a much bigger risk of falling into a deflationary trap,” said Julian Callow, global strategist at Barclays. “The danger is when deflation combines with high debt and deleveraging and becomes toxic. That raises the risk of a debt-deflation spiral. There are already signs of this in southern Europe.”
Mr Callow said nominal GDP – tracked by monetarists as the key indicator in sovereign debt crises – fell 1.8pc in Spain and 1.2pc in Italy last year. This means that the debt burden is rising fast on a contracting base.
David Owen, from Jefferies Fixed Income, said the mix of falling inflation and an ageing population risks pulling the eurozone into a “liquidity trap” where the self-correcting mechanisms of the economy break down. “This looks strikingly similar to Japan 15 or so years ago,” he said.Mr Owen said the ECB cannot just “sit back and do nothing this week” at its meeting on Thursday, and may ultimately have to launch full-blown quantitative easing.
Most analysts expect the ECB to cut rates a quarter point to 0.5pc but there is broad consent that this will do little to alleviate the credit crunch for smaller firms in Spain, Italy and Portugal, where borrowing costs are two to three times higher than costs for North European rivals.
Data from the ECB show that the eurozone’s “broad” M3 money supply contracted in March, while private loans fell by 0.8pc. “The growth of money over the last three months has been very weak. The imbalance within EMU between Germany and the rest is intensifying,” said Tim Congdon from International Monetary Research.
Hell they even mention such scary monsters as “liquidity trap”s: “This means that the debt burden is rising fast on a contracting base.” Wow, who’da thought it… :dry:
L,
Sid.Hi Folks,
To my previous comment on the absence of the use of the word ‘deflation’, we now have “disinflation”:
From Zero Hedge:
Submitted by Lance Roberts of Street Talk Live,
While I have no doubt that at some point down the road that inflation will become an issue, interest rates will rise and the dollar will strengthen – it just won’t be anytime soon. A wave of “disinflation” is currently engulfing the globe as the Eurozone economy slips back into recession, China is slowing down and the U.S. is grinding into much slower rates of growth. Even Japan, despite their best efforts through a massive QE program, cannot seem to break the back of the deflationary pressures on their economy. This is a problem that has yet to be recognized by the financial markets.
The recent inflation reports (both the Producer and Consumer Price Indexes) show deflationary forces at work. Wages continue to wane, economic production is stalling and price pressures are falling. More importantly, there are downward pressures on the most economically sensitive commodities such as oil, copper and lumber all indicating weaker levels of economic output. The battle against deflationary economic pressures has been what the Federal Reserve has been forced to fight since the financial crisis. The problem has been that, much like “Humpty-Dumpty”, the broken financial transmission system, as represented by the velocity of money, can’t be put back together again…
The weak level of economic growth, global deflationary pressures, demographic trends and excess indebtedness which derails productive investment are keeping inflationary pressures suppressed.
(bold in orig)
The real concern for investors, and individuals, is the actual economy. We are likely experiencing more than just a “soft patch” currently despite the mainstream analysts rhetoric to the contrary. There is clearly something amiss within the economic landscape and the recent decline in rates, the dollar and inflation are telling us that.
“There is clearly something amiss within the economic landscape and the recent decline in rates, the dollar and inflation are telling us that.” Erm I wonder what that could be? Nothing to do with a humungus debt bubble and the peaking of energy supplies obviously. Maybe it’s just the ‘New Normal’. :unsure:
L,
Sid.Hi Folks,
Maybe the Real Reason for QE: they’re scared of turning Japanese… in terms of a deflationary liquidity trap (so no its not a bailout):
Bill Dudley speech:
Lessons at the Zero Bound: The Japanese and U.S. ExperienceRemarks at the Japan Society, New York City
“…Fifth, at the zero lower bound, risk management becomes extremely important. In particular, because the costs of getting stuck in a liquidity trap with chronic deflation are high, a central bank should put substantial weight on avoiding this outcome.
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…With deflation intensifying, the Bank of Japan embarked on a quantitative easing (QE) program in 2001 designed to increase the size of the monetary base. The Bank of Japan engaged in purchases of JGBs that were large in scale, but confined to short-dated maturities. This reflected a view that such purchases primarily acted through the liabilities side of the central bank’s balance sheet—pushing up the amount of reserves in the banking system. Because the growth of the monetary base was deemed the goal of policy, it was logical to purchase short-dated assets, which could be allowed to run off once a sustainable recovery was in place.
…
…More than a decade after Japan’s bubble burst, the U.S. housing bubble burst. This exposed extensive vulnerabilities in our financial system and triggered a global financial crisis.6 Unlike Japan, we had the advantage of being able to learn from another nation’s recent experience. We applied what we understood to be the lessons from Japan, though with hindsight, perhaps not in every respect as completely as we could have.In particular, Japan’s experience reinforced the lessons of the Great Depression here in the U.S. and made us sensitive to the disinflationary force of an asset price bust and financial crisis. We recognized that we had to be very aggressive to prevent deflation and deflation expectations from becoming well entrenched.”
(bold in excerpt added)
Way to go, don’t end up like Japan by doing exactly what Japan did. :huh:
(A little history lesson here for those with short memories!)
The problem they have of course is that there is not going to be a sustainable recovery, as they are sitting on a foam of bursting bubbles and blowing bigger ones all the time just to fall behind at a slower rate (– IMHO they are no longer doing the ‘Red Queen’ stunt of running to stand still, they are instead just sinking into the foam.) They say you can’t fight the FED, well the FED is about to find out it can’t fight the laws of thermodynamics (energy) and the ‘law’ of diminishing returns (environment), or continue to inflate the biggest debt bubble ever (economy)… 🙁
Heads up to TAE for telling it how it now is way back when.
L,
Sid.Hi Folks,
Whip-flation anyone? It looks like the ‘deflation’ might be rapid and brutal followed by a sudden inflation as governments panic and do all sorts of silly things causing people to suffer the equivalent of “financial” whiplash:
Will It Be Inflation Or Deflation? The Answer May Surprise You
Submitted by Tyler Durden on 05/23/2013 22:33 -0400
From: Submitted by Michael Snyder of The Economic Collapse blog,
“The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis. This will happen so quickly that many will get “financial whiplash” as they try to figure out what to do with their money. We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.
…
…Right now, we are living in the greatest debt bubble in the history of the world. When a debt bubble bursts, fear and panic typically cause the flow of money and the flow of credit to really tighten up. We saw that happen at the beginning of the Great Depression of the 1930s, we saw that happen back in 2008, and we will see it happen again. Deleveraging is deflationary by nature, and it can cause economic activity to grind to a standstill very rapidly.During the next major wave of the economic collapse, there will be times when it will seem like hardly anyone has any money. The “easy credit” of the past will be long gone, and large numbers of individuals and small businesses will find it very difficult to get loans.
When the debt bubble bursts, cash will be king – at least for a short period of time. Those that do not have any savings at all will really be hurting.
And some of the financial elite seem to be positioning themselves for what is coming. For example, even though he has been making public statements about how great stocks are right now, the truth is that Warren Buffett is currently sitting on $49 billion in cash. That is the most that he has ever had sitting in cash.
Does he know something?
Of course there will be a tremendous amount of pressure on the U.S. government and the Federal Reserve to do something once a financial crash happens. The response by the federal government and the Federal Reserve will likely be extremely inflationary as they try to resuscitate the system. It will probably be far more dramatic than anything we have seen so far.
So cash will not be king for long. In fact, eventually cash will be trash. The actions of the U.S. government and the Federal Reserve in response to the coming financial crisis will greatly upset much of the rest of the world and cause the death of the U.S. dollar.”
etc.
That is of course assuming that anything resembling politicians and central bankers actually survives the ‘crash’. Here is how a previous ‘problem’ was resolved… and we all know how well that went. :dry:
L,
Sid.
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