The Deflation Time Bomb

by Mike Whitney / January 11th, 2008

Is there anyone who still does not understand that talk of ‘inflation’ by officialdom is just a red herring intended to distract us from the far more dangerous dragon of deflation?

– Mike Shedlock, Mish’s Global Economic Trend Analysis

We are to about see how much George Bush really believes the “supply side” mumbo-jumbo he’s been spouting for the last seven years. Last week’s Labor Department report confirmed that unemployment is on the rise (5%) and that corrective action will be required to avoid a long and painful recession. There’s a good chance that the Chameleon in Chief will jettison his “trickle down” doctrine for more conventional Keynesian remedies like slashing interest rates, government programs, and tax relief to middle and low-income people. On Monday Bush announced that his team of economic advisors was patching together an “Economic Stimulus Package” that will be unveiled later this month in the State of the Union Speech. The goal is to rev up sagging consumer spending and slow down business contraction. Ironically, the UK Telegraph dubbed the stimulus plan Bush’s “New Deal.” It’s a shocking about-face for a president that has been clobbering the middle class since he took office and who balks at even providing temporary shelter for disaster victims. Now Bush is going to have to give away the farm just to keep the economy from crashing. Good luck. Clearly, the prospect of a system-wide meltdown in banking, real estate and equities has become a “Road to Damascus” moment for lame-duck George.

The up-tick in unemployment is just the final part of an otherwise bleak economic picture. Manufacturing is hurting too. Last Wednesday, the December ISM Manufacturing Index plunged to 47.7, its lowest level in five years. The news put the stock market into a 200-plus nosedive and sent gold soaring over $800 per ounce. Since then, the news has gotten progressively worse. The market fell another 200-plus points on the Labor Dept’s report on Friday, followed by 238 point jolt on Tuesday on rumors of (potential)
bankruptcy at mortgage lending giant, Countrywide Financial, and a 2.6% plunge in pending housing sales from the National Association of Realtors. By the time ATT announced its fears of “reduced consumer spending” the market was already barrel rolling towards earth in a sheet of flames.

The Dow Jones is now 10% off its yearly high, the official sign of a correction. More important, equities blew through their support levels indicating a basic change in the market’s trajectory. It’s a primary bear market now and any rebound will be temporary. There’s still a lot of fat to be trimmed before overvalued stocks return to the mean. No wonder Bush is nervous.

http://www.dissidentvoice.org/2008/01/the-deflation-time-bomb/

Go to the link in the page and read.

I have debt that I am working on eliminating and do intend to dig any more holes for myself either.
If you do not have IT, then do not spend IT.

I'm glad the message I've been repeating over and over and over and over again until everybody at DU is sick to death of it is getting out there.

I got rid of credit cards in 1991 when I was notified of the appearance of all those junk fees allowed by deregulation, along with the insistence on paying a minimum monthly balance. To me, it looked like the beginning of a scam and I was right. I keep an ATM card and that's it. I keep the balance in that account low enough that it won't hurt too much if somebody gets hold of it. It's adequate for online purchases.

Debt is poison, even debt you think is a sure thing to eliminate. You can eliminate debt only when an economy is doing well, not when it is being stacked to favor the rich. The only exception to this is a mortgage on modest living quarters as a hedge against rising rents, and yes, rents are definitely going to be on the rise.

If you can get out of debt, you are likelier to survive what is coming. It is going to be ugly, it always is.

surely others here will understand more than I do...but I take what information I can.

:(


http://www.contraryinvestor.com/mo.htm

"Will The Truly Efficient Market Please Stand Up?

…Although maybe it always seems this way, but it sure feels to us as if we’re entering 2008 with some of the most pressing issues for the financial markets and real economy we’ve faced in quite some time. Very important fundamental issues that for now remain very unresolved. Here’s a very short list of highlight topics:..."


Mish's Global Economic Trend Analysis
http://globaleconomicanalysis.blogspot.com/


Site at Silicon Investor FWIW
http://siliconinvestor.advfn.com/subject.aspx?subjectid=54696

Good article. I wonder what happens to the price of Gold if there is a run on the dollar and the Fed is forced to raise interest rates? (We all know the Fed will never come to their senses on their own) Will gold act the same as in IN-Flation? Can anyone comment? Tnx :shrug:

If there is a run on the dollar, the price of gold should increase in dollars, though it may not increase in Euros or other currencies.

If there is a run on all paper currencies then gold should increase in price in all currencies.

If there is general deflation, but people maintain confidence in paper currencies, gold will decline in price.

At best, I see stagflation on the horizon, if it is not here now. Yes we have deflation in houses but we have inflation in food and commodities.

At worst, we could have deflation followed by hyperinflation, and I pray that won't happen.

said that Whitney holds an extreme, alarmist view of the economy. I don't know who's right.

When wealth is shifted upward into the fewest number of hands while debt is substituted at the bottom for a living wage, bad things always happen.

There is no exception to this.

about 30 years ago I had a "misunderstanding" :eyes: with the IRS that cost me some serious dough, and resulted in a major shift in my spending pattern. I am well past all of that but the attitude of conservative spending necessitated by the whole thing stayed with me (not being a killjoy with spending, just paying attention to it, with an eye towards unforseen downturns in personal finances).

I never thought I would be thankful for that period of my life, but I sure am now... :o

... that we learn the most about life from adversity? Certainly seems to be that way for me.

When people are maxed out on debt, lowering the interest rates to encourage them to take on more debt is lunacy. The entire economic "boom" and housing "boom" were manufactured by Greenspan to make money for the banks and stockbrokers.

Low interest rates boosted real estate sales and mortgage lending beyond what the economy could sustain. This was done solely to boost profits for the financial, construction, and housing industries.

Low interest rates from banks on savings accounts and CD's made it easy to promote the sale of stocks. By encouraging people to spend their savings in buying stocks, this deluge of money into the stock market drove the price up (price inflation) and gave stock brokers and corporate insiders huge profits.

The Bush "fix" for the impending collapse is to lower interest rates and extend more credit. Low interest rates and people with too much debt ARE the problem. So the Bush fix is comparable to putting out a fire by dousing it with kerosene.

Actually, Bush's "fix" is to promote the same policies that were designed to enrich the corporations. This means that their "repair" is actually aimed at protecting corporate profits, not saving the economy or protecting the middle class.

There is a way to reverse the problems with the economy. But it requires implementing policies that will prevent the continued theft of America by the corporations.

The REMEDY for our economic problems is to BRING JOBS BACK to America. Put Americans to work earning money and they will be able to pay their debts and buy stuff. That is what the economy is all about. The buying and selling of goods and services. This will reduce the trade deficit since the money spent on goods will go to other Americans, not foreigners. Working Americans will pay taxes reducing the federal deficit. Since our deficits will go down, the value of the dollar will recover. It is simple economics.

Don't hold your breath. The right-wing will never implement the needed policies. The corporations will have to suck it up and actually return some of the money they have stolen from the middle class. They will have to reimplement the regulatory policies put in place by Franklin Roosevelt and the New Deal. They will have to abandon the ethanol and hydrogen fuel farce, and put in place policies that will reduce the consumption, and wastage, of oil.

In the 1930's, it took a severe depression for the politicians to actually do something useful to repair the economy. When the pundits and the so-called economics "experts" are putting out so much spin, guys like Whitney are a voice crying in the wilderness.

There ya' go...

Jan. 17 (Bloomberg) -- The U.S. housing slump deepened in December, concluding the worst year for the industry since Jimmy Carter was president, while a gauge of manufacturing tumbled to a level unseen since the 2001 recession.

Home construction fell 14 percent to an annual rate of 1.006 million, the Commerce Department said today in Washington. The drop exceeded the most pessimistic projection among economists surveyed by Bloomberg News. For all of 2007, starts were down 25 percent, the most since 1980. Meanwhile, the Philadelphia Federal Reserve Bank's general economic index fell to minus 20.9, the lowest reading since October 2001.

Federal Reserve Chairman Ben S. Bernanke told Congress today that the economy is ``suffering'' and said a stimulus package would help shore up growth. He repeated that he's ready to respond to the faltering expansion after cutting the main interest rate by 1 percentage point since September.

``The likelihood of a recession has increased,'' said Gary Bigg, an economist at Bank of America Corp. in New York. ``We're looking for fairly weak growth over the first half of 2008.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajec1T9MGth8&refer=home

I wonder if the social fabric of this land can survive a protracted economic downturn-I have my doubts but much will depend on how our party governs in the next three years

Enron was like an omen of things to come!

Then there's Halliburton moving to Dubai...

By the way, consumer confidence is very important!
:yoiks:
Let's all go shopping!

Vice President Cheney's Economic Hypocrisy June 14, 2006
http://www.gather.com/viewArticle.jsp?articleId=281474976759911

edited to add --
We the people, need a president
who will be an advocate for us.
That's the CHANGE America NEEDS!