Thread: Stagflation

suspect we are going to be hearing a lot about this , both locally and internationally .


Stagflation


Stagflation occurs when the economy isn't growing but prices are, which is not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.


A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.


investopedia.com


FOREX-Dollar remains near record lows
Wed Feb 27

NEW YORK, Feb 27 (Reuters) - The dollar hovered near record lows on Wednesday as unexpectedly weak data showed orders for long lasting U.S.-made goods fell the most in five months, cementing expectations for further U.S. interest rate cuts.

snip

"This is another piece of data that justifies concerns about stagflation," said Adam Fazio, senior currency strategist at CIBC World Markets in New York. "This also adds to the case that we're going to see a 50-basis-point easing in March."

snip

reuters.com



Euro Surges, Dollar Tumbles On Fed Rate-Cut Expectations

snip

Gary Thomson, an analyst with CMC Markets in London, said the euro surged because markets are looking for clues from Federal Reserve Chairman Ben Bernanke about more rate cuts in the U.S. when he addresses lawmakers later in the day. "Inflation -- or perhaps more to the point, stagflation -- remains a concern for the Fed as seen with yesterday's PPI data and as a result now that the most significant of psychological levels since parity has gone, we could see further downside pressures emerging for the greenback," he said, referring to a string of disappointing economic reports out of the U.S. on Tuesday.

snip

online.wsj.com

^ "Stagflation" is the big buzzword being put out by the media right now.

It may or may not be starting to happen. We'll wait and see.

One thing to note:

The US unemployment rate called "U3" which is reported to the media gives the lowest rate availalbe, and the real unemployment rate is higher.

The real CPI and PPI rates are often higher than what the government reports, also.

So, things may not so so rosy, this year.

Americans are paying their mortages on credit cards, credit card debt is the next shoe to drop.

Originally Posted by Spin

Americans are paying their mortages on credit cards, credit card debt is the next shoe to drop.

American delinquent payments on Credits Cards are at all-time highs.

American late payments on auto-loans are also at all-time highs.


(I can't recall the source, because I read these reports about everyday in US and foreign economic reports.)

Originally Posted by Milkman

^ "Stagflation" is the big buzzword being put out by the media right now.

It may or may not be starting to happen. We'll wait and see.

One thing to note:

The US unemployment rate called "U3" which is reported to the media gives the lowest rate availalbe, and the real unemployment rate is higher.

The real CPI and PPI rates are often higher than what the government reports, also.

So, things may not so so rosy, this year.

Don't worry about unemployment. As long as people like Bush, Greenspan and Bernanke get well paid jobs there cannot be a problem at all.
And if those people get no jobs there will not be a problem at all.

Stagflation as a consequence of the abandonment of monetarism in favour of excessive liquidity and unregulated market forces was always on the cards. The fact that the world's media have only just come to acknowledge this phenomenon is probably a testament to their inability to be anything other than a mouthpiece to vested interests and peoples' economic illiteracy.

The current seizure of the banking system is a direct result of debt saturation unsustainable in any economic system and was foreseen by most intelligent pundits for over 3 years now.

The problem is how do central banks cope with it?

The Americans seem to be heading towards 0% interest rates in the hope that recession can be avoided and increasing GDP will somehow bale them out. The Brits lurched in this direction in reducing the rate recently but the BoE governor has since signalled that inflation fears means that further rate cuts will be unlikely despite the economic slowdown and the pain that will be felt by all.

Greenspan and his adherents in the west thought that monetarism was dead and that the central control of the money supply redundant.

Big mistake.

Recession, credit sqeeze, high interest rates is the medicine but political considerations and a weak Bernanke will prevent the US from taking it I fear.

We are all doomed.

Originally Posted by thegent

Stagflation as a consequence of the abandonment of monetarism in favour of excessive liquidity and unregulated market forces was always on the cards. The fact that the world's media have only just come to acknowledge this phenomenon is probably a testament to their inability to be anything other than a mouthpiece to vested interests and peoples' economic illiteracy.

The current seizure of the banking system is a direct result of debt saturation unsustainable in any economic system and was foreseen by most intelligent pundits for over 3 years now.

The problem is how do central banks cope with it?

The Americans seem to be heading towards 0% interest rates in the hope that recession can be avoided and increasing GDP will somehow bale them out. The Brits lurched in this direction in reducing the rate recently but the BoE governor has since signalled that inflation fears means that further rate cuts will be unlikely despite the economic slowdown and the pain that will be felt by all.

Greenspan and his adherents in the west thought that monetarism was dead and that the central control of the money supply redundant.

Big mistake.

Recession, credit sqeeze, high interest rates is the medicine but political considerations and a weak Bernanke will prevent the US from taking it I fear.

We are all doomed.

Thanks for the points, Gent.

What do you think will happen in the next year?

Next 5 years?

Next 7 years?


If you think you know now, or if you have an opinion. Thanks if you want to respond, as you seem to know a lot about this isseu.


TIA.

^^ The Fed has been all about supply shock management (classic definition) since 1979 with Volker, appointed by Carter incidently, which is credited for stopping inflation and restored GDP growth after a long recession in 1982 which started under Reagan

There has been arguments between the New Keynesians and the New Monetarists, basically one targeting interest rates, while the other targets the quantity of money.

It's obvious that Bernanke is targetting interest rates these days to save the subprime mess, and this is a controversial move, as GDP will slow down regardless and there is a risk of liquidity trap if the interest rates are getting too low to kick start the economy.

So we might see very low interest rates in the coming future, with no growth. This is what the Japenese have been dealing with for the last 20 years.

Recession, stagflation! Must be an old git and certainly don't understand the intricacies of these terms but please tell me when all of this becomes a depression?

Depression

A severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.

In times of depression, consumers' confidence and investments decrease, causing the economy to shut down. The classic example of this occurred in the 1930s, when the Great Depression shook the global economy.

investopedia.com

^^Thanks mid. See the progression now. No wonder the gov has been avoiding usage of the word recession! Might scare the hell out of everyone and we can't have that in the midst of an election year!

the rub with a recession is that an economy needs to be in one for 2 successive months before it can be called .............

hindsight only

Milkman,

I'm no expert and haven't a clue about what the future holds.

Frankly, economics could never be regarded as a science worth bothering about since one of its greatest determining factors, sentiment, is virtually unquantifiable.

However, history tells us that trends are cyclical, generally of 7 years duration and that asset bubbles/booms are always followed by downward compensatory corrections.

The current levels of indebtedness here in the UK are without parallel and represent some 5% of GDP, a statistic leading some to opine that we are approaching banana republic status.

We are in totally unchartered waters and I am reminded of the advice given when one finds oneself on a rock strewn lee shore with no power: you don't.

Hence, the "we're all doomed " comment. Inflation, recession and devaluation are all likely and the GBP will hit parity with the Euro.

The Yanks are a different ballgame. The scale of their economy is such that the laws of economics could well be bent and they will indeed rebound. Nobody really knows.

Using Japan as a precedent is not useful, at least to the Brits anyway. Deflation is a black hole but when you manufacture wealth to the degree that the world's banks queued at the door to borrow from you it's not such a worry.

Go short on gold and long on soya beans.

Originally Posted by thegent

Go short on gold

Interesting opinion, one which i have been compemplating. US financials will rebound soon and when they do rebound, my sentiment feels they will rebound big, taking the dollar upwards with them, I feel. That will lead to a widespread dropping of gold and gold stocks. Nor just yet though perhaps?

Originally Posted by Mid

the rub with a recession is that an economy needs to be in one for 2 successive months before it can be called .............

hindsight only

A pedant I know, but it is 2 successive quarters...

Originally Posted by thegent

The Yanks are a different ballgame. The scale of their economy is such that the laws of economics could well be bent and they will indeed rebound. Nobody really knows.

I think that you will find that the fundamentals of the US economy exerbate their medium term difficulties. The sub-prime crisis originates in the US trailer park and personifies itself in the balance sheets of the pillars of corporate America, Citi, JPMC etc., etc., see:

https://teakdoor.com/us-domestic-issu...tml#post529137

The US trade imbalance will only be corrected in a realignment of Yuan/USD that would cause THB/USD to equal 22-25. In turn, this is unpalatable for both sides and the intentions of the Chinese with regards to their USD holding is crucial to whether fundamental values are restored in the currency markets.

Which brings us back to Stagflation...

Realignment between Yuan/USD to realistic level = massive inflation for consumer goods (imported) in US
Massive Inflation in US without comparable wage rises (which are unachievable due to benefit of price inflation being given to Exporting country) = recession/depression

Clear result is stagflation....

Alternatively, if the present (albeit changing incrementally) 'artificial' USD/Yuan rate is maintained then the present fall of USD against all other currencies will intensify. Why? Well, the US is not in isolation. By pegging the Yuan to varying values of the dollar, there is a defacto devaluation against GBP, Aussie dollar, Euro etc., etc., of both Yuan and USD. This will further distort trade trade imbalences between China and The Rest of the World.

They are all between the devil and the deep blue sea. Stagflation may be the result...

Edit - bloody spelling when p1ssed...

Truly one of the more unpleasant words in the English language, especially to a president's ears... Sounds like a type of impotence induced by flatulence or something "Dude, I stagflated... it was so embarrassing..."

Originally Posted by bkkandrew

Originally Posted by Mid

the rub with a recession is that an economy needs to be in one for 2 successive months before it can be called .............

hindsight only

A pedant I know, but it is 2 successive quarters...

ouch

and fair call ..............

The choice is between growth and high prices or no growth (or even depression) and low prices.

I will rather choose the first one,

Ooh-er.

Last year's most profitable hedge fund goes belly up! (From Bloomberg):

By Katherine Burton and Tom Cahill
Feb. 28 (Bloomberg) -- Peloton Partners LLP, the London- based hedge-fund firm run by former Goldman Sachs Group Inc.
partners, is selling assets because of losses on mortgage-backed securities, said two people with knowledge of the matter.
Peloton, founded by Ron Beller and Geoff Grant in 2005, is liquidating part of its asset-backed fund after declines in higher-rated mortgage securities, said the people, who declined to be identified because Peloton hasn't disclosed the information.
The firm has bids for holdings of the Peloton ABS Fund from firms, including Citadel Investment Group LLC and GLG Partners Inc., and is working with lenders to meet commitments, the people said.
The Peloton ABS Fund was named the best new fixed-income fund of 2007 by EuroHedge magazine after rising 87 percent on what Beller called a ``world-coming-to-an end'' trade that debt linked to subprime loans would tumble and higher-rated securities would rise. The fund had about $1.8 billion of assets.
``The rubbish goes down first and then the good stuff is pulled down with it,'' said Nigel Blanshard, a partner at London- based Culross Global Management Ltd., an $800 million fund that invests in other hedge funds and isn't a Peloton client. ``The flight to quality this year has been to get out of mortgages altogether.''
Grant, 47, who works in Santa Barbara, California, declined to comment.

`No Clothes'

When he collected his EuroHedge award last month, Beller, 45, said the firm's investment strategy had been built on a conviction that ``the emperor had no clothes.'' The ABS fund is managed by Peter Howard and David Watson.
``Our shorts last year were largely in subprime and our longs in prime assets,'' Beller said in a Jan. 25 telephone interview. ``We just benefited from the sharp drop in subprime and feel well positioned going forward as we expected our longs to continue to perform and our shorts to continue to deteriorate.''
A short sale is designed to profit when the security falls in value, while a long position is a bet the security will rise.
At New York-based Goldman, Beller headed the fixed-income, currency and commodity sales groups in Europe, and Grant oversaw the global foreign exchange business and was co-head of the firm's macro proprietary trading group. After Beller left Goldman in 2001, he worked for a year reorganizing New York City's school system.

Stick With Success

Peloton, which is named after a bicycle-racing formation in which riders work together to increase their speed, held its profitable trades into this year because it was confident they would continue to advance, according to a December investor report to investors in its Multi-Strategy fund, a copy of which was obtained by Bloomberg News. The firm's $1.6 billion Multi- Strategy fund, run separately from the ABS fund, gained 27 percent in 2007.
``We believe there is substantial profit potential built into our portfolio and expect plenty of opportunities to augment this through opportunistic trading around our core positions,''
the report said.
``We have recently fielded questions from ABS investors about `the trade' in 2008 and are confident we already have it on,'' the report said. ``As each month passes, this will become increasingly evident as our senior securities amortize at par while our subordinate shorts start receiving writedown payments.''

--With reporting by Jody Shenn in New York. Editors: Larry Edelman, Tim Quinson.

To contact the reporters on this story:
Katherine Burton in New York at +1-212-617-2335 or kburton@bloomberg.net.
Tom Cahill in London at +44-20-7673-2052 or tcahill@bloomberg.net