More deflation in Japan

[lomiller]

things getting steadily cheaper doesn't sound so bad to me.

Really?

Lets say you buy a house for $500K and put $100K down. You pay $20K per year most of which goes towards interest. After interest payments you pay down $5K per year. Deflation hits and your house gets cheaper by 5% per year.

After 6 years the bank comes up to you and says you have no equity left in your house so we are going to sell it to get our money back. You have to leave now.
How wonderful would that be?

The more generic version is that deflation punishes investors, which means there can be no new business or jobs or wealth creation so everyone becomes too poor to pay even reduced prices for things.

 

[lomiller]

again, because you need it for your business? if not, you shouldn't be investing (using debt generally) on it anyway.

It doesn’t matter if you use debt or not, deflation punishes you for investing. For example, you invest in an expansion to produce 1000 widgets per year. If there is deflation, even if you can still sell 1000 widgets per year your sales in $ will drop year over year.

Since your business value is linked to sales value the value of your business will also drop year over year. Why would you ever invest in a business whose value goes down every year? If your business is declining in value every year you want to sell it now so you can get the cash not invest new cash.

 

[anglolawyer]

Someone once said, 'if you think inflation's bad, try deflation'. Apologies if this was already posted upthread.

 

[Tippit]

So much nonsense posted, so little time to refute it all.

If the any deflation = deflationary spiral theory is true, then why isnt the any inflation = inflationary spiral theory correspondingly true? In other words, if people hoard money to destabalizing, life-destroying excess in deflationary times, then why wouldn't they dishoard it to excess in inflationary times, for the same reason (the absolute maximization of purchasing power)? The answer, of course, is that neither are true, and that to maintain a constant period of inflation requires one class of people (the money creators) to literally steal from another class of people (savers, people on fixed income). Deflation, on the other hand, merely means progress, and lower prices enjoyed by all.

 

[Brainster]

So much nonsense posted, so little time to refute it all.

If the any deflation = deflationary spiral theory is true, then why isnt the any inflation = inflationary spiral theory correspondingly true? In other words, if people hoard money to destabalizing, life-destroying excess in deflationary times, then why wouldn't they dishoard it to excess in inflationary times, for the same reason (the absolute maximization of purchasing power)?

They do. During periods of hyperinflation people either quickly spend their money, purchase investments that protect against inflation (precious metals, or real estate) or convert it to another currency which is not experiencing the inflation. Read up on the Peruvian hyper-inflation of the late 1980s sometime. People would get their pay and immediately go out on the street to convert the currency to dollars. The inflation was so bad that even if you though the guy on the street was ripping you off with the exchange rate, you'd take his deal because by the time you got to guy on the next block, the inflation in the meantime would mean that you got an even worse deal.

The answer, of course, is that neither are true, and that to maintain a constant period of inflation requires one class of people (the money creators) to literally steal from another class of people (savers, people on fixed income). Deflation, on the other hand, merely means progress, and lower prices enjoyed by all.

Lower prices are also enjoyed by business owners for the labor they require--i.e., lower wages. It also means lower values for the investment that makes up the largest portion of the middle class' net worth--home values.

 

[The Central Scrutinizer]

is it any surprise that crony capitalists who were bailed out by money printing, would be in favor of money printing in general, and those who clamor for it publicly in particular? not to people who don't have man crushes on said crony capitalists.

The gold bug's lament - gold is such a great investment, but when someone points out that it really isn't, we whine about how unfair the world is.

 

[The Don]

So much nonsense posted, so little time to refute it all.

If the any deflation = deflationary spiral theory is true, then why isnt the any inflation = inflationary spiral theory correspondingly true? In other words, if people hoard money to destabalizing, life-destroying excess in deflationary times, then why wouldn't they dishoard it to excess in inflationary times, for the same reason (the absolute maximization of purchasing power)? The answer, of course, is that neither are true, and that to maintain a constant period of inflation requires one class of people (the money creators) to literally steal from another class of people (savers, people on fixed income). Deflation, on the other hand, merely means progress, and lower prices enjoyed by all.

To quote yourself....

So much nonsense posted, so little time to refute it all.

Deflation may be of limited help to a comparatively small number of people (those on fixed income) but as pointed out repeatedly upthread, for almost everyone else it's bad.

In inflationary times people do "dishoard", they go out and buy stuff with their savings before they cannot afford it any more.

 

[kevsta]

To quote yourself....

So much nonsense posted, so little time to refute it all.

Deflation may be of limited help to a comparatively small number of people (those on fixed income) but as pointed out repeatedly upthread, for almost everyone else it's bad.

In inflationary times people do "dishoard", they go out and buy stuff with their savings before they cannot afford it any more.

and people being "forced" to spend their savings by losing the value of them otherwise is a good thing is it?

 

[kevsta]

The gold bug's lament - gold is such a great investment, but when someone points out that it really isn't, we whine about how unfair the world is.

it has nothing to do with gold, Buffet is a bailed out crony capitalist, therefore his opinion on bailouts and those who call for MOAR will be different from the people who pay for his bailouts.

and there is also plenty of whining from paperbugs to look forward to also, after all their world is purely imaginary.

nobody has got any clothes on under the receding tide.

 

[The Don]

and people being "forced" to spend their savings by losing the value of them otherwise is a good thing is it?

Absolutely not, but no-one is claiming that hyperinflation is a good thing.

I was responding to Tippit's point:

if people hoard money to destabalizing, life-destroying excess in deflationary times, then why wouldn't they dishoard it to excess in inflationary times, for the same reason

..the fact is that in inflationary times, in particular hyperinflationary times, people do dishoard.

 

[kevsta]

Absolutely not, but no-one is claiming that hyperinflation is a good thing.

I was responding to Tippit's point:

..the fact is that in inflationary times, in particular hyperinflationary times, people do dishoard.

ok, just clarifying..

 

[kevsta]

It doesn’t matter if you use debt or not, deflation punishes you for investing. For example, you invest in an expansion to produce 1000 widgets per year. If there is deflation, even if you can still sell 1000 widgets per year your sales in $ will drop year over year.

Since your business value is linked to sales value the value of your business will also drop year over year. Why would you ever invest in a business whose value goes down every year? If your business is declining in value every year you want to sell it now so you can get the cash not invest new cash.

these strike me as very generalistic assumptions that are possibly quite outdated in the modern financial world.

perhaps if you are talking about local small businesses, but supposedly we live in a world of impending deflation currently, hence the global stimulus operations?

I live in Spain, which could definitely be classed as deflationary at the moment, yet my business is steadily growing YOY, both locally and internationally, and I have been investing into it.

Recessions and hard times are a great opportunity for the better firms to squeeze the rest out of business and take market share.

its like, actual capitalism, you know? where the stronger survive, and the weaker perish, and the fact that something might be cheaper next year makes no difference at all to the fact that I can use it now, to perform better.

I dont really want the local wallies to all be able to get free cheap money from their banks to keep going. just die already.

I'm not disputing the evidence that this has happened in all the big examples in the past, but from my perspective as a small business owner I'm not making business decisions based on inflation:deflation - especially as I generally dispute the figures anyway, but based on operational requirements.

 

[The Don]

I live in Spain, which could definitely be classed as deflationary at the moment, yet my business is steadily growing YOY, both locally and internationally, and I have been investing into it.

Spain is in recession but it is not in a deflationary spiral. Spain has a positive inflation rate.

You could argue that what happened in the Spanish property market was an example of what happens when deflation sets in but that wouldn't be fair because:

• It was a bubble fuelled crash rather than an inexorable deflationary spiral
• There was the rest of the Spanish economy to make things better/worse
• Foreign demand fuelled the Spanish property market more than you'd expect for a whole economy.

 

[kevsta]

its also true I wouldn't buy property here yet as I am expecting further declines.

Spain has the best of both worlds, inflation at street level and GDP in spiral decline.

 

[The Don]

Spain has the best of both worlds, inflation at street level and GDP in spiral decline.

But neither of these things is deflation.

 

[kevsta]

But neither of these things is deflation.

technically no, but the banking system is very much in a deflationary environment all of its own, which kind of sets the scene.

 

[The Central Scrutinizer]

it has nothing to do with gold, Buffet is a bailed out crony capitalist, therefore his opinion on bailouts and those who call for MOAR will be different from the people who pay for his bailouts.

Thus proving my point.

The beauty of it is that Mr. Buffett (and other successful investors) get to travel the world, drive nice cars, live in nice homes, etc. Meanwhile, the goldbugs sit in their trailer, secure in the knowledge that they're right.

 

[The Don]

technically no, but the banking system is very much in a deflationary environment all of its own, which kind of sets the scene.

I don't know what you mean by the above statement. By that I mean I cannot parse and understand it rather than understanding and disagreeing and not understand where the thought comes from.

Banks appear to be doing everything they can to encourage people to spend their savings. In the UK at least it is nearly impossible to get a positive return against inflation and absolutely impossible if you're a high rate taxpayer. There's no incentive from the banks not to go out and spend.

What the banks in the UK are doing is to rationalise their loan books by attempting to get rid of risky business (and to not take any more on by making it harder to get loans). This will tend to introduce deflationary pressures (by reducing the amount of available credit) which the Bank of England is counteracting through Quantitative Easing

 

[lomiller]

these strike me as very generalistic assumptions that are possibly quite outdated in the modern financial world.

Every once and a while people proclaim that valuing investments based on their future earnings prospect is “outdated”. The last time the did so in the stock market was the dot com bubble. The last time they did so in the real-estate market we had the housing bubble and subsequent collapse.

At the end of the day future earning underpin everything else in investing. Warren Buffet has made himself one of the richest men in the world by recognising this. In a deflationary environment where future earning decline instead of increase there are few if any good investments and the smart money parks itself on the sidelines.

I live in Spain, which could definitely be classed as deflationary at the moment, yet my business is steadily growing YOY, both locally and internationally, and I have been investing into it.

If this were true then I would say you need to recognise that a deflationary environment is a less than zero sum game. If your sales are increasing it’s coming at the expense of someone else and so are is the burden of the decline in $ value of sales that goes with deflation.

Since Spain is not experiencing deflation, and in fact has had inflation of 4% or higher a couple times in the last few years the point is moot.

http://www.tradingeconomics.com/spain/inflation-cpi

 

[kevsta]

I don't know what you mean by the above statement. By that I mean I cannot parse and understand it rather than understanding and disagreeing and not understand where the thought comes from.

what I mean is that banks are still undergoing their slow-motion implosion, having already been bailed out and consolidated once before (Bankia) the implosion continues, more bailouts will be required (perhaps 2-300 billion Euros) still required if everybody told the truth.

http://uk.reuters.com/article/2013/03/27/uk-spain-banks-ceiss-idUKBRE92Q16I20130327

Spain's banking crisis is on pause, for the moment but a long way from over, and as I understood it, banking crises are somewhat deflationary in nature?

If this were true then I would say you need to recognise that a deflationary environment is a less than zero sum game. If your sales are increasing it’s coming at the expense of someone else and so are is the burden of the decline in $ value of sales that goes with deflation.

but life is a zero sum gain? your win is always somebody else's loss, inflation or deflation doesn't change that. everybody can never win can they, whether their money gets more or less valuable is just different challenges.

Since Spain is not experiencing deflation, and in fact has had inflation of 4% or higher a couple times in the last few years the point is moot.

http://www.tradingeconomics.com/spain/inflation-cpi

the economy has been and is still deflating, there's no doubt about that.

from your link, inflation weightings are quite different to the US, what would US figures work out to if calculated like this, do we think?

In Spain, the most important categories in the consumer price index are food and non-alcoholic beverages (20 percent of the total weight) and transport (15 percent).

The index also includes: real estate (12 percent); hotels, coffee and restaurants (11.5 percent); clothing and footwear (9 percent) and entertainment and culture (7.5 percent).

Health, communication, education and other goods and services account for the remaining 25 percent of total weight.

I wonder how inflation in some other places would look using these weightings and whether it would alter the perceived "need" for stimulus

..not Japan, I believe them, at least.