Date: Fri Dec 19 2003 17:33
trotsky (goldfish@inflation) ID#377387:
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electronic toys? the Italian firm e-tek just dropped prices on most of its goodies by 80%...some inflation. but leaving this piece of anecdotal evidence aside, with China's entrance on the global manufacturing stage, industrial overcapacities in all things electronic have become even more pronounced. no wonder the huge deflationary gap in the US economy continues to persist, with well over 30% of resources being idled.
t-bill rates are lately meandering between 0.8 and 0.9%, and the treasury/TIPS rate has begun to contract again, all of which indicates that inflation will continue to fall sharply ( as it has in fact done all year long. even if one rejects the governments statistics, they DO reveal trends ) . as for MONETARY deflation, it has only JUST BEGUN. the only way to measure monetary inflation is by looking at the growth of the money supply. the money supply has now begun to contract, for the first time in 13 years, and the rate of contraction is the largest since 1945.
the widely accepted conventional wisdom theory that rising commodity prices in USD terms ( note that gold has e.g. not budged vs. the euro this year, and has declined in several other currency terms, and the same goes for crude oil ) are indicative of future inflation is mistaken. this is only true during Kondratiev summer periods, when debt levels are still low enough to allow for a large expansion - and both labor and business possess pricing power, which they currently lack. recent profit warnings by value-adding food manufacturers demonstrate this clearly - they simply can not pass on their rising input costs. this in turn means that rising input costs will simply damage margins, and the ability to service debt across all industries except the raw materials producers. this in turn should magnify the beginning destruction of the debt berg ( i.e. all the money that was previously created out of thin air ) - inherently a deflationary event.
since the debt berg is already so large as to defy any reasonable resolution, it is pretty far-fetched to expect it to grow even LARGER. that however would be the sine-qua-non for any inflation expectations to prove correct.
my prediction: DEFLATION will make headlines again in '04. |
