Editor’s Note: In the following article Robert Prechter shows you how to prepare for a deflation. By Robert Prechter, CMT The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you. Many investment advisors speak as if making money by investing is easy. It’s not. What’s easy is losing money, which is exactly what most investors do. They might make money for a while, but they lose eventually. Just keeping what you have over a lifetime of investing can be an achievement. That’s … [Read more...]
Making Preparations and Taking Action in Today’s Deflationary Environment
Editor’s Note: In the following article Robert Prechter shows you how to prepare for a deflation. By Robert Prechter, CMT The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you. Many investment advisors speak as if making money by investing is easy. It’s not. What’s easy is losing money, which is exactly what most investors do. They might make money for a while, but they lose eventually. Just keeping what you have over a lifetime of investing can be an achievement. That’s … [Read more...]
Why the Bailout Will Result in Hyperinflation
Editor's Note- In this article Olivier Garret, CEO of The Casey Report shows us the massive extent of the bailout compared to every major Government expenditure from the Revolutionary War and the Louisiana Purchase to the Iraq War in inflation adjusted terms and the results are pretty scary. Based on the magnitude of the bailout expenditures it appears Hyperinflation is already baked into the cake. You thought WWII and Iraq were expensive? You "ain't seen nothin' yet. The current bailout is larger than all the major government expenditures since the revolutionary war combined. And lest you think that is because the bailout is comparing inflated dollars against more valuable (and … [Read more...]
Disinflation – What is it?
Definition of Disinflation By Tim McMahon To fully understand disinflation we need to first understand inflation. The reasons this is trickier than it first appears is because the word inflation is actually used in two different contexts. The most common usage of the word inflation means rising prices. Commonly "consumer prices" so when you go to the gas station or the grocery store and the things you buy cost more than last month (or when it is really bad even more than last week) this is more precisely defined as "price inflation". The second meaning of the word inflation is actually the original meaning. And that is an increase in the money supply that causes "price … [Read more...]
Will the $800 Billion Bailout Cause Massive Inflation?
Last month I said that the simulated M3 measure of the money supply was indicating that deflation was in the works. See M3 is Back and Predicting Deflation. So how will a massive injection of almost $1 Trillion dollars affect the money supply? If you have read any of the articles on inflation on this site you will realize that the primary cause of price inflation is monetary inflation. In other words, if the government cranks up the printing presses the price of almost everything goes up. For more information see What is Inflation? and Inflation Cause and Effects. So you would think that it is only obvious that a massive injection of money like the recent $800 Billion bailout … [Read more...]
Inflation Moderate? Who Does The Fed Think They Are Fooling?
By Charles Delvalle Just when you thought reality was setting in at the Fed, you get reminded how silly that idea really is. I say that because lately the Fed has been talking about how bad inflation is, and how they need to be ‘vigilant’ so that inflation expectations don’t deteriorate. If you talk to anyone on the street, I bet they have noticed that prices are higher for just about everything. I don’t know about you, but I sure think that inflation expectations are already pretty bad. So, you would think they’d be really hawkish about inflation at the meeting. Maybe that’ll happen at another meeting, because it sure didn’t happen at the one on Wednesday. … [Read more...]
Inflation and Recession Chart
How does Inflation and recession correlate? Current Commentary Does high inflation correspond with a recession? Or does high inflation precede a recession? This chart shows the historical average Annual Inflation rate (red line) compared to the time periods where the country was in recession (blue shaded areas). Since 1914 there have been eight recessions. Three lasted for a single year, (in 1953, 1957 and again in 1990). The longest recession was actually the "Great Depression" which lasted ten years from 1929 to 1939. … [Read more...]
Inflation vs Consumer Price Index – Do you know the difference?
Many people are confused by the difference between Inflation and the Consumer Price Index. The Consumer Price Index is as its name implies an index, or “a number used to measure change”. The Consumer Price Index (CPI-U) The government chose an arbitrary date to be the base year and set that equal to 100. Currently that date is 1984. (Or more accurately the average of the years 1982-1984) previously the base year was 1967 (they change the base year every once in a while so you don't notice that there has been over 2000% inflation since the start). See Cumulative Inflation Since 1913. Every month the Bureau of Labor Statistics (BLS) surveys prices around the country for a basket of … [Read more...]
What Causes Inflation?
Inflation Cause and Effect I often receive letters from students, that demonstrate a fuzzy understanding of inflation and its causes. Unfortunately, I often get the same type letters from teachers and business people too! It seems that people often confuse the cause of inflation with the effect of inflation and unfortunately the dictionary isn't much help. As you can see in my article What is the Real Definition of Inflation? the modern definition of inflation is "A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money..." In other words according to this definition inflation is things getting more expensive. But that is … [Read more...]
What is Deflation?
Define Deflation: In common usage deflation is generally considered to be "falling prices". But there is much more to it than that. Often people confuse deflation with disinflation or with Depression (as in "the Great Depression"). These three terms are related but not synonymous. According to Investorwords.com the definition of Deflation is "a decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, … [Read more...]
