Deflation! Us & Europe 2006 Ending 2009!

[Harmonica]

Bubble of construction, financed by growing debts... so - where is the point in which credit drops? What are the conditions that will no longer allow it to stretch any more?

G, refer to Teach's definition on the first page or read the next post for Bob Prechter's answer to your question. I was lucky to have saved it for future reference.

[Harmonica]

Read several times if necessary -- powerful concepts here and very well explained. Many thanks to Robert Prechter for this outstanding work!

What is the primary precondition of deflation?

A major societal build-up in the extension of credit (and its flip side, the assumption of debt). Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. Deflation involves a substantial amount of involuntary debt liquidation, because almost no one expects deflation before it starts.

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What triggers the change to deflation?

A trend of credit expansion has two components: the general willingness to lend and borrow and the general ability of borrowers to pay interest and principal. These components depend respectively upon:

(1) the trend of people's confidence, i.e., whether both creditors and debtors think that debtors will be able to pay, and

(2) the trend of production, which makes it either easier or harder in actuality for debtors to pay.

So as long as confidence and production increase, the supply of credit tends to expand. The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. As confidence and production decrease, the supply of credit contracts.

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How much does psychology have to do with the change to deflation?

The psychological aspect of deflation and depression cannot be overstated. When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation:

As creditors become more conservative, they slow their lending.

As debtors and potential debtors become more conservative, they borrow less or not at all.

As producers become more conservative, they reduce expansion plans.

As consumers become more conservative, they save more and spend less.

These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend.

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What else triggers the change to deflation?

The structural aspect of deflation and depression is also crucial. The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain – in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans – that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed, and creditors refuse to underwrite the interest payments with more credit.

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And then it all comes crashing down?

Right. When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward "spiral" begins, feeding on pessimism just as the previous boom fed on optimism.

The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, "restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.

[Harmonica]

Yeah brother, this says more than most! Federal Reserve chart showing how the debt monstrosity progressed over the last 29 years.

http://img313.imageshack.us/img313/3915/de...burstwhen8u.jpg

[Harmonica]

Yeah brother, this says more than most!  Federal Reserve chart showing how the debt monstrosity progressed over the last 29 years.

http://img313.imageshack.us/img313/3915/de...burstwhen8u.jpg

[Harmonica]

Note: (acknowledgement of the source)

The chart data above is from the Fed but I believe the analysis and wave numbering sequence were done by the folks at EWI.

[~G~]

The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. As confidence and production decrease, the supply of credit contracts.

Right - so the evidence I am looking for is a major fall in production, which will lead to the contraction of credit. Or, since the debt is so high, a mild fall might do the trick?

[Harmonica]

The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. As confidence and production decrease, the supply of credit contracts.

Right - so the evidence I am looking for is a major fall in production, which will lead to the contraction of credit. Or, since the debt is so high, a mild fall might do the trick?

Correctomundo! But its more than that -- notice that the Annual Debt Growth is clearly showing a 5-wave move to the upside and that we are presently in wave 5.

We must be nearing the end of wave 5 because usually in wave 5 is where indicators start showing divergences -- and these are readily apparent in the lower panels of the chart.

Prepare for decompression!

[Harmonica]

For G:

Many moons ago we were in a discussion about the property bubble -- more interesting data presented here:

60% of MLs last year had adjustable interest rates, many with artificially low teaser rates that expire after the first few years."

> 25 percent of all new mortgages in the last year have been interest-only loans, which allow buyers to postpone principal payments for three to five years but which become much more expensive afterward.

The hottest new loan, the option adjustable-rate mortgage, or option ARM, which gives borrowers the choice of paying interest and principal, interest only, or even less than the normal interest. If the home buyer picks the lowest possible payment, the mortgage debt goes up rather than down.

Lending practices such as granting loans equal to 100 percent of the value of the homes; granting large loans without due attention to the likelihood of higher monthly payments in the future; and granting "no-doc" (no documentation) or "low-doc" loans that require little or no proof of income or assets."

If the boom in home prices ends, instead of paying for equity, they hope to get it by fiat; worst-case scenario, if they really can't afford the payments, they'll "flip" the house in a year or two for a profit, hehehehe

madness, madnes, madness.

[~G~]

> 25 percent of all new mortgages in the last year have been interest-only loans, which allow buyers to postpone principal payments for three to five years but which become much more expensive afterward.

That is certainly not a good sign but the disastrous effects should come after these first years are over - meaning the timer for this bomb might still be ticking for a while, or do you have similar info regarding previous years?

The hottest new loan,  the  option adjustable-rate mortgage, or option ARM, which gives borrowers the choice of paying interest and principal, interest only, or even less than the normal interest. If the home buyer picks the lowest possible payment, the mortgage debt goes up rather than down.

That is quite unbelieveable.

If  the boom in home prices ends, instead of paying for equity, they hope to get it by fiat; worst-case scenario, if they really can't afford the payments, they'll "flip" the house in a year or two for a profit, hehehehe

That's waht I call optimism

Slightly offtopic - "ClubMarket", the third largest retail chain in Israel (holding 13% of the market) has just collapsed last week. Banks in Israel are notorious for giving huge loans with little or no guaranties to big bodies or wealthy investors. Then, when that project/company collapses and goes bankrupt, the same investors continue to receive further loans for other ambitious projects.

[Harmonica]

Negative amortization loans go beyond interest-only payments -- the owner will not only have NO equity; the mortgage will be a larger amount than the owner faced to start with.

How common is this? MSNBC reported 40% of mortgages over $36K that have closed so far this year are -ve amortization loans.

madness continues

[Harmonica]

Negative amortization loans go beyond interest-only payments -- the  owner will not only have NO equity; the mortgage will be a larger amount than the owner faced to start with.

How common is this?  MSNBC reported 40% of mortgages over $36K that have closed so far this year are -ve amortization loans.

madness continues 

error: should read 360K

[Harmonica]

For G

“Consumer spending for June grew by .8%, the largest increase since July 2004 -- not to mention a .5% rise in personal incomes, slightly above the Street’s expectations. (ABC News)

“This is a fresh testament to the economy’s momentum as it headed into the third quarter.” (Reuters)

“Consumers are really on a bit of a tear. These are very strong numbers and they bode well for the near-term economic outlook.” (Bloomberg)

“Nasdaq surges to a four year high as Wall Street welcomed data showing increased consumer spending.” (MarketWatch)

Now for the real story , not reported in the financial media:

In June, layoffs rose to the highest level in 17 months, while a slew of big-named businesses warned of more firings to come in due time.

Also, the Index of Help Wanted Advertising over the past four decades shows today’s number at a 44-year low.

The personal savings rate in June plunged from .4% in May to 0% -- the second lowest reading since the Great Depression, marking ONLY the second time in history when the savings rate fell to or below zero. (October 2001 being the first).

[~G~]

Nice one. But what about this:

BANGKOK: -- Major commercial banks have begun to increase medium- and long-term deposit rates, showing liquidity in the system has eased, according to the Bank of Thailand (BOT).

The BOT’s Deputy Governor in charge of the Financial Institutions Stability,Tarisa Watanagase, said yesterday that the interest hike was part of the banks’ efforts to peg long-term costs and evidence that most believed interest rates are on the rise.

She said the liquidity had begun to ease, noting although the decrease was relatively small, it had pushed up the interest rates, which would benefit depositors and boost saving in the system.

The interest rise is in response to the BOT’s projection that the interest rates offered by local commercial banks would continue to rise.

'Whether the interest rates will increase rapidly and significantly or not depends on the liquidity of each bank. It is beyond the central bank’s ability to anticipate," she said.

A source said Siam Commercial Bank Plc yesterday raised its 24-month and 36-month deposit rates by 25 basis points to 2% and 3%, effective yesterday.

--TNA 2005-08-09

[Harmonica]

Why is that engine humming?

Because it doesn't know the words!

The engine will now start to gain speed and velocity towards Deflation. The last few commodities that have been holding up thus far, will reverse and head south.

Here's some recent happenings to add to the Deflation story:

Real Estate has broken the 200-day. Strong signs that a TOP has already been registered .... in August, this year!

Watch for catastrophic levels of evictions, property firesales and then bank failures -- how do I know this is to come? The Banking Index of 1000 American Banks has made a new LOW , going below the April low.

There might not be anybody here who knows where New Orleans is located; doesn't matter -- its far more important to know where the beer and p*ssy is -- but on the offchance that someone might be interested .... ?

New Orleans took out a hefty short-term loan just prior to the hurricane to be able to keep its schools open for a few more weeks.

Where will be the only few places to hide and watch?

That's the question, amigos!

[~G~]

Where will be the only few places to hide and watch?

<{POST_SNAPBACK}>

In long-term short positions?

By the way, how do you reconcile the deflation prediction with your USD prediction?

[cclub75]

Where will be the only few places to hide and watch?

<{POST_SNAPBACK}>

Thailand of course !

I like very much your "deflation" post Harmonica (less the one about Nasdaq,Dow...)

Oncle Sam is still holding his big gun : the "dollar super printing machine".

And the second big gun... is the EVEREST of USD that China has in stock...

I start to believe that US have in a way manipulated China, to create a strong bond between the 2 countries.

To say short : Chinese will have to continue to buy the "dollar super printing machine". At least, for a few years.

China can not afford to let the EVEREST melting like a "vulgaire" ice cream. Not now.

And minimum : until the Olympics Games. I know it's sound trivial but think about it... Meanwhile, China is not completly ready to show its muscles (army modernisation, space conquest) and to secure it's oil supply.

When they will be ready... then yes they will have the power to crush the US.

But it would end by a war (the US will of course fight back).

Anyway, even if it's this scenario sound strange... i'm convinced that USA will be tempted to apply the good old "rule" : after a cruel recession, make a cruel war... that's the best cure.

So i agree with your analysis, but i'm probably a bit more conservative about the timeline.

"On vit une epoque formidable !"

Edited October 14, 2005 by cclub75

[Harmonica]

Where will be the only few places to hide and watch?

In long-term short positions?

By the way, how do you reconcile the deflation prediction with your USD prediction?

Medium-term & long-term. If the Deflation scenario plays out, it will not be of short duration. Actually, even our friend Warren, unrelated to Deflation, stated back in 2000 that he expected the next 17 years to be -ve for stock investing. He is a billionaire, albeit 31 billion less, after not listening to me -- and instead, going SHORT the Dollar in late 2004!

In a Deflation the USD will soar , contrary to what fundamentalists, even Jewish ones like yourself, state ever so vehemently!

One more reason, which EVERY mother's son here at this site of geniasses, has completely missed -- and it is no surprise to me, for as fundamentalists, they stink & so does their research and their assinine, hovine, bovine utterances -- Capital will flow towards the country with the higher differential in Interest Rates.

Even more important than the statement above is the perception that the future will embrace a rising Interest Rate Trend, untrammeled once initiated. Its all about perception! Thus even though Rates have been low stateside since Easy Al started dropping them in Jan 2001, they are rising and are EXPECTED to rise even further over considerable time.

The only worthwhile fundamental equation to consider is this question of Capital flows and why.

This is the primary fundamental reason, clearly evident from a Technical Analysis standpoint via charts, that the Aussie & NZ dollar will fall out of favor versus the USD. The differential will continue to grow as time progresses -- the smart money sensed this in April 2005, but I, just a small fish swimming amongst larger fish and sharks, saw this in November 2004, hehehehe.

On a different note, GBP versus Yen has been an outstanding carry trade for those who held the currency pair in favor of LONG the British Pound for years. It earned $23 per day in Interest differential alone, without counting the gain in currency exchange, on a $100,000 stake. The future for this pair is in question now as Britain's rates are changing and Japan will ..... ???

God, do I love it so!

[Harmonica]

Where will be the only few places to hide and watch?

Thailand of course !

I like very much your "deflation" post Harmonica (less the one about Nasdaq,Dow...)

Oncle Sam is still holding his big gun : the "dollar super printing machine".

And the second big gun... is the EVEREST of USD that China has in stock...

I start to believe that US have in a way manipulated China, to create a strong bond between the 2 countries.

To say short : Chinese will have to continue to buy the "dollar super printing machine". At least, for a few years.

China can not afford to let the EVEREST melting like a "vulgaire" ice cream. Not now.

And minimum : until the Olympics Games. I know it's sound trivial but think about it... Meanwhile, China is not completly ready to show its muscles (army modernisation, space conquest) and to secure it's oil supply.

When they will be ready... then yes they will have the power to crush the US.

But it would end by a war (the US will of course fight back).

Anyway, even if it's this scenario sound strange... i'm convinced that USA will be tempted to apply the good old "rule" : after a cruel recession, make a cruel war... that's the best cure.

So i agree with your analysis, but i'm probably a bit more conservative about the timeline.

"On vit une epoque formidable !"

That is why I live here! Serendipity magnifique! It is God's country; even with just a simple dial-up internet connection to get my work done, it continues to thrill me for the simplicity of life one can revel in.

Since you've read the thread, I'm assuming you've noticed that I mentioned that I was not sure whether Thailand would be hit by a stateside-originated-Deflation tidalwave; the Thai Baht will be the key to evaluating that eventuality.

[chownah]

Where will be the only few places to hide and watch?

<{POST_SNAPBACK}>

Thailand of course !

I like very much your "deflation" post Harmonica (less the one about Nasdaq,Dow...)

Oncle Sam is still holding his big gun : the "dollar super printing machine".

And the second big gun... is the EVEREST of USD that China has in stock...

I start to believe that US have in a way manipulated China, to create a strong bond between the 2 countries.

To say short : Chinese will have to continue to buy the "dollar super printing machine". At least, for a few years.

China can not afford to let the EVEREST melting like a "vulgaire" ice cream. Not now.

And minimum : until the Olympics Games. I know it's sound trivial but think about it... Meanwhile, China is not completly ready to show its muscles (army modernisation, space conquest) and to secure it's oil supply.

When they will be ready... then yes they will have the power to crush the US.

But it would end by a war (the US will of course fight back).

Anyway, even if it's this scenario sound strange... i'm convinced that USA will be tempted to apply the good old "rule" : after a cruel recession, make a cruel war... that's the best cure.

So i agree with your analysis, but i'm probably a bit more conservative about the timeline.

"On vit une epoque formidable !"

<{POST_SNAPBACK}>

That is why I live here! Serendipity magnifique! It is God's country; even with just a simple dial-up internet connection to get my work done, it continues to thrill me for the simplicity of life one can revel in.

Since you've read the thread, I'm assuming you've noticed that I mentioned that I was not sure whether Thailand would be hit by a stateside-originated-Deflation tidalwave; the Thai Baht will be the key to evaluating that eventuality.

<{POST_SNAPBACK}>

What aspect of the Thai Baht will you use to evaluate whether Thailand is hit by a stateside-originated-Deflation tidalwave?

[Harmonica]

Where will be the only few places to hide and watch?

Thailand of course !

I like very much your "deflation" post Harmonica (less the one about Nasdaq,Dow...)

Oncle Sam is still holding his big gun : the "dollar super printing machine".

And the second big gun... is the EVEREST of USD that China has in stock...

I start to believe that US have in a way manipulated China, to create a strong bond between the 2 countries.

To say short : Chinese will have to continue to buy the "dollar super printing machine". At least, for a few years.

China can not afford to let the EVEREST melting like a "vulgaire" ice cream. Not now.

And minimum : until the Olympics Games. I know it's sound trivial but think about it... Meanwhile, China is not completly ready to show its muscles (army modernisation, space conquest) and to secure it's oil supply.

When they will be ready... then yes they will have the power to crush the US.

But it would end by a war (the US will of course fight back).

Anyway, even if it's this scenario sound strange... i'm convinced that USA will be tempted to apply the good old "rule" : after a cruel recession, make a cruel war... that's the best cure.

So i agree with your analysis, but i'm probably a bit more conservative about the timeline.

"On vit une epoque formidable !"

That is why I live here! Serendipity magnifique! It is God's country; even with just a simple dial-up internet connection to get my work done, it continues to thrill me for the simplicity of life one can revel in.

Since you've read the thread, I'm assuming you've noticed that I mentioned that I was not sure whether Thailand would be hit by a stateside-originated-Deflation tidalwave; the Thai Baht will be the key to evaluating that eventuality.

What aspect of the Thai Baht will you use to evaluate whether Thailand is hit by a stateside-originated-Deflation tidalwave?

A breakout above the dashed red lines @ 43 & 44.3 respectively.

[chownah]

QUOTE(Harmonica @ 2005-10-15 11:44:47What aspect of the Thai Baht will you use to evaluate whether Thailand is hit by a stateside-originated-Deflation tidalwave?

[right)

<{POST_SNAPBACK}>[/right]

A breakout above the dashed red lines @ 43 & 44.3 respectively.

<{POST_SNAPBACK}>

I don't see how the exchange rate for Thai baht against the US dollar would indicate that there is a stateside-originated-Deflation tidalwave. The exchange rate back in 1998 and thereabouts was above this level and there was no deflationary tidal wave happening. It seems to me that the exchange rate only tells the realative value of the two currencies and says nothing about the cost of goods specifically which is, after all, what deflation is all about....can you explain?

[Harmonica]

QUOTE(Harmonica @ 2005-10-15 11:44:47What aspect of the Thai Baht will you use to evaluate whether Thailand is hit by a stateside-originated-Deflation tidalwave?

[right)

[/right]

A breakout above the dashed red lines @ 43 & 44.3 respectively.

I don't see how the exchange rate for Thai baht against the US dollar would indicate that there is a stateside-originated-Deflation tidalwave. The exchange rate back in 1998 and thereabouts was above this level and there was no deflationary tidal wave happening. It seems to me that the exchange rate only tells the realative value of the two currencies and says nothing about the cost of goods specifically which is, after all, what deflation is all about....can you explain?

Would you care to reconsider that statement?

A crash of the Baht will bring tremendous pain to this country. There was considerable suffering in the 1997 crash and prices collapsed across the board.

I'm talking about a BIGGER one to finish the job.

In a worldwide deflationary crash, the $ will soar! The currency pair, USD/THB will fly; speculators here will go SHORT the Thai Baht. A crashing Baht can never be good for this country.

The currency always gives a warning before other sectors flash red lights.

Hence the 43 and 44 levels!

[chownah]

QUOTE(Harmonica @ 2005-10-15 11:44:47What aspect of the Thai Baht will you use to evaluate whether Thailand is hit by a stateside-originated-Deflation tidalwave?

[right)

<{POST_SNAPBACK}>[/right]

A breakout above the dashed red lines @ 43 & 44.3 respectively.

<{POST_SNAPBACK}>

I don't see how the exchange rate for Thai baht against the US dollar would indicate that there is a stateside-originated-Deflation tidalwave. The exchange rate back in 1998 and thereabouts was above this level and there was no deflationary tidal wave happening. It seems to me that the exchange rate only tells the realative value of the two currencies and says nothing about the cost of goods specifically which is, after all, what deflation is all about....can you explain?

<{POST_SNAPBACK}>

Would you care to reconsider that statement?

A crash of the Baht will bring tremendous pain to this country. There was considerable suffering in the 1997 crash and prices collapsed across the board.

I'm talking about a BIGGER one to finish the job.

In a worldwide deflationary crash, the $ will soar! The currency pair, USD/THB will fly; speculators here will go SHORT the Thai Baht. A crashing Baht can never be good for this country.

The currency always gives a warning before other sectors flash red lights.

Hence the 43 and 44 levels!

<{POST_SNAPBACK}>

I have reconsidered my previous post and I still don't think that a stateside-originated-Deflation tidalwave is what caused the weak baht circa 1998.....and....my experience of prices of Thai products in Thailand during this period was that prices remained the same....hotels cost the same, bus tickets and airline tickets cost the same, restaurant prices stayed the same, food stall prices stayed the same......frankly, I didn't see any deflation....I have a difficult time thinking that you believe that the US economy is what caused the meltdown in the Thai economy....maybe I'm wrong about the deflation...if so I'd certainly like to learn about it...do you have a link talking about inflation during that period in Thailand?

I want to be sure I understand your prediction. You are predicting a stateside-originated-Deflation tidalwave and the result will be that the US dollar will rise in value with all/most currencies and specifically against the baht.....is this correct? I guess also you are predicting that prices of consumer goods will also drop across the board....this is a necessary part of deflation, right?

[beammeup]

Harmonica,

How in YHO-- will the UK£ fare in this deflation tidalwave?

QUOTE(Harmonica @ 2005-10-15 11:44:47What aspect of the Thai Baht will you use to evaluate whether Thailand is hit by a stateside-originated-Deflation tidalwave?

[right)

<{POST_SNAPBACK}>[/right]

A breakout above the dashed red lines @ 43 & 44.3 respectively.

<{POST_SNAPBACK}>

I don't see how the exchange rate for Thai baht against the US dollar would indicate that there is a stateside-originated-Deflation tidalwave. The exchange rate back in 1998 and thereabouts was above this level and there was no deflationary tidal wave happening. It seems to me that the exchange rate only tells the realative value of the two currencies and says nothing about the cost of goods specifically which is, after all, what deflation is all about....can you explain?

<{POST_SNAPBACK}>

Would you care to reconsider that statement?

A crash of the Baht will bring tremendous pain to this country. There was considerable suffering in the 1997 crash and prices collapsed across the board.

I'm talking about a BIGGER one to finish the job.

In a worldwide deflationary crash, the $ will soar! The currency pair, USD/THB will fly; speculators here will go SHORT the Thai Baht. A crashing Baht can never be good for this country.

The currency always gives a warning before other sectors flash red lights.

Hence the 43 and 44 levels!

<{POST_SNAPBACK}>

I have reconsidered my previous post and I still don't think that a stateside-originated-Deflation tidalwave is what caused the weak baht circa 1998.....and....my experience of prices of Thai products in Thailand during this period was that prices remained the same....hotels cost the same, bus tickets and airline tickets cost the same, restaurant prices stayed the same, food stall prices stayed the same......frankly, I didn't see any deflation....I have a difficult time thinking that you believe that the US economy is what caused the meltdown in the Thai economy....maybe I'm wrong about the deflation...if so I'd certainly like to learn about it...do you have a link talking about inflation during that period in Thailand?

I want to be sure I understand your prediction. You are predicting a stateside-originated-Deflation tidalwave and the result will be that the US dollar will rise in value with all/most currencies and specifically against the baht.....is this correct? I guess also you are predicting that prices of consumer goods will also drop across the board....this is a necessary part of deflation, right?

<{POST_SNAPBACK}>

[Harmonica]

>>>>>> I have reconsidered my previous post and I still don't think that a stateside-originated-Deflation tidalwave is what caused the weak baht circa 1998 <<<<<<

There was no deflationary period stateside in 1998; therefore there was no deflationary effect on Thailand in 1998. Don't recall ever having said such a thing for the 1998 period.

Therefore your statement above is incorrect!

The 1998 crash was a SE Asia regional one that had effects on world markets such as the US etc. The cause was here but the effects were worldwide, pretty much.

It is opposite of what we are talking about now.

[~G~]

Where will be the only few places to hide and watch?

<{POST_SNAPBACK}>

In long-term short positions?

By the way, how do you reconcile the deflation prediction with your USD prediction?

<{POST_SNAPBACK}>

In a Deflation the USD will soar , contrary to what fundamentalists, even Jewish ones like yourself, state ever so vehemently!

Jewish, Italians, Brits, Scandinavians - any more generalizations please?

Capital will flow towards the country with the higher differential in Interest Rates. 

This is a good point and answers my question.

Even more important than the statement above is the perception that the future will embrace a rising Interest Rate Trend, untrammeled once initiated.  Its all about perception!  Thus even though Rates have been low stateside since Easy Al started dropping them in Jan 2001, they are rising and are EXPECTED to rise even further over considerable time.

Now you got me confused again - I thought that deflation is falling interest rates, contraction of credit etc?!

Edit: On second thought, it does make sense - lack of credit means it's expensive to borrow, high value of money means you can lend it for high return...

Edited October 18, 2005 by ~G~

[Harmonica]

>>>>>> my experience of prices of Thai products in Thailand during this period was that prices remained the same....hotels cost the same, bus tickets and airline tickets cost the same, restaurant prices stayed the same, food stall prices stayed the same......frankly, I didn't see any deflation <<<<<<<

Yeah rich farang, lucky you!

Tell that to Thai people and to the farang businessmen who lived thru' the 1998 debacle.

Every village Thai learned the word IMF during that period of extreme hardship.

If there's anything that could bring me to tears its some of the hardship and extreme suffering of the people here during that time.

Read up on the 1998 incident; there are books written on the subject.

My point here is that 1998 was just a whiff of what's to come. My Deflation call is regarding the future, not the past . The past was only a warning sign.

For your edification I am presenting 3 charts of the stock market of Thailand along with the property index and Bank index. See the red arrows on the decline in 1998?

[Harmonica]

The Banking sector suffered tremendously during 1997-98 period. Confidence was shattered.

The finance sector, not shown here, had upwards of 80% of the Finance companies go out of business.

I believe that there were only 12 left by the end of the debacle. I might be off on this figure a bit.

Anyway here's the banking sector:

[Harmonica]

While you were enjoying "unchanged" prices in your fancy restaurants, staying in nice hotels etc., property prices collapsed by 80%+.

They have still not recovered convincingly.

After this go into the other sectors of the Thai economy for similar catastrophies.

No sector was spared, except for the "Farang" sector.

[Harmonica]

>>>>>>>> Harmonica,

How in YHO-- will the UK£ fare in this deflation tidalwave? <<<<<<<<<<<<<<

Don't know!

But here is an educated guess:

For the forseeable future the $ will trounce the Pound.

For the longer-term it is better to hide and watch how the Bank of England will act on Interest Rates.

My feeling is that BOE will loosen now, not tighten. As for what it will do in the future, better to wait and see.

This is a subject that is better viewed and revisited on a monthly basis for these trends, once started can be very long indeed. Right now we are just transitioning from a period where everybody's currency has been hammering the US Dollar and it has taken a huge beating.

Despite the beating, it still remains the world's reserve currency despite China, Korea, Taiwan and other deadbeats threatening to switch to Euro. The total amount they were threatening didn't even amount to what the Forex markets trade in a single day.

&lt;deleted&gt; 'em.