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Housing Panic - The Housing Bubble Blog with Attitude (개인)자료용 글들

Housing Panic - The Housing Bubble Blog with Attitude

Saturday, October 07, 2006

Inflation? Deflation? Recession? Depression? Tomato? Tomato?


Take your pick of poison. Maybe we have a little of this, a little of that. Or maybe just some of that. Or maybe we'll have some of that after we have some of this?

It would appear to the naked eye that we're seeing significant deflation in hard illiquid asset prices - gold, silver, oil, houses - as people rush to cash. We're seeing inflation in living consumables - health care, orange juice, dry cleaning, movie tickets, tomatoes you name it.

Indeflation? Deinflation? What the heck do we call this monster?

Here's an interesting read at Financial Sense addressing this very conundrum.

About this time, when some aspect of the economy is in trouble, the deflationists come out of the wood work with the equivalent of sticker shock “catch phrases” and “hunker in the bunker” ideologies. This will cause those who are just getting interested in commodities to develop a case of the jitters and bail. In Science, failure to look for the root cause of a problem rather than symptoms leads to an improper diagnosis and this just as true in the financial markets. I am writing this for those considering investments in the commodity arena performing the required due diligence.

The amount of money floating around is the key to inflation, whether it is derived from printing or issuance of credit. An increase in money supply drives inflation i.e. more money chasing the same number of goods. With all of the money churning around the globe, it must have a certain velocity to keep the economies of the globe flowing smoothly. A substantial decrease in velocity of money results in lower economic activity, which results in fewer jobs, less demand for commodities, etc. i.e. recession.

Increasing house prices through irresponsible credit availability will require more money printing to compensate for stalling velocity in time. Inflation normally has rising interest rates to compensate investment interests (banks must charge more than inflation rates in order to make money). Since the US housing market is where most individuals concentrate net worth, the FED must keep rates as low as possible until many of the newer adjustable mortgages get reset over the next year. Artificially low interest rates create a negative real return, which bolsters the price of precious metals.

In the end, there will be a deflationary collapse following the current period of inflation and it will be due to a zero velocity of money compounded with plummeting manufacturing output. At this point in the future, owning cash and bullion will be important.
http://housingpanic.blogspot.com/2006_10_01_housingpanic_archive.html

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