Duende wrote:Daniel_Plainview: what's your thinking about why we're seeing deflation? Especially in the face of the naked printing that was going on for QE1 and 2... does this pretty much guarantee a third round of printing?
Here are 10 reasons why we see deflation:
1. Economies can no longer grow without cheap oil; the world has hit a brick wall such that when oil prices reach $90 (West Texas) to $100/bbl (Brent), growth collapses. The only reason US GDP growth is positive is because of the ongoing massive govt life-support (fiscal and monetary stimulus), which adds at least 8% to GDP.
2. The collapsing housing & asset bubbles will take years to unwind ... if ever ...
3. The underlying economic fundamentals are very weak, and getting weaker. For example, structural unemployment is worsening, and the unavailability of cheap oil will exacerbate this. Unemployed people spend less on goods and services, which leads to a deflationary spiral.
4. Wages are stagnant or decreasing, and are now at levels of the 1990's.
5. Ballooning sovereign debts won't allow for further stimulus and/or bailouts.
6. Sovereign default risks will tighten credit even more.
7. Credit is tightening because banks won't lend when the asset-collateral values are suspect or impaired (there's so much fraud and non-transparency in the system now that actual asset values are largely unknown/unknowable).
8. The shadow banking system is the pinnacle of opacity, and when that begins to collapse ... look out ...
9. Persistent zero interest rates (ZIRP) have caused malinvestments and distortions in the capital / financial markets, such that we now have a negative real interest rates, which causes disincentives for savings / investment.
10. There's so much global uncertainty that consumers and investors are cautious and holding back. There's the pervasive background feeling that "the party's over."
Duende wrote: Especially in the face of the naked printing that was going on for QE1 and 2... does this pretty much guarantee a third round of printing?
The problem is that naked printing exacerbates the problems when oil & commodity prices skyrocket. Heli-Ben is too much of an idiot to realize this, though ... so we will see QE3.