Deflation and Coronavirus

kmiklas · Apr 13, 2020

At first, with all this QE and money-printing going on, I was concerned about inflation. [1] Listening to a speech by Mr. Powell, he said:

Jerome Powell said:
I'm not worried about inflation. [2]

I thought that maybe he said this because the focus is near-term: keep the markets lubed at all costs for the next few months.

Then, the light bulb went on: he's worried about DEFLATION.

It's almost a classic deflationary scenario: massive unemployment spike, companies force-closed and profits way down (supported only by monetary and fiscal policy). Corporations and others holding on to cash.

The real "nail in the knee" of inflation now is that stores have been forced to close; you can't go to a Ford dealer and buy a new truck. They can't raise prices; their prices have effectively been forced to zero!

Any opinion on the deflationary risk of today's monetary and fiscal policy?

1. https://www.elitetrader.com/et/threads/gold-10t-in-qe-and-inflation.342993/

2. @15:30

Atikon · Apr 13, 2020

Yes. There is none.

tiddlywinks · Apr 13, 2020

The inflation that you expect, and that the keynsians have been expecting for the last decade will appear when no one wants, or a better word would be "trusts" the USD.

You are 100% correct to be expecting deflation. A much more timely and situational concern is food shortages, regardless of the reason (there are several potential bottlenecks), that will cause food costs in general to inflate. For the moment, the lack of restaurant purchases is an offset to what currently is a minor disruption.

zdreg · Apr 13, 2020

The only thing about deflation that concerns Powell is he might be deflated

out of a job if he doesn't follow marching orders from President Trump.

Girija · Apr 13, 2020

kmiklas said:
At first, with all this QE and money-printing going on, I was concerned about inflation. [1] Listening to a speech by Mr. Powell, he said:

I thought that maybe he said this because the focus is near-term: keep the markets lubed at all costs for the next few months.

Then, the light bulb went on: he's worried about DEFLATION.

It's almost a classic deflationary scenario: massive unemployment spike, companies force-closed and profits way down (supported only by monetary and fiscal policy). Corporations and others holding on to cash.

The real "nail in the knee" of inflation now is that stores have been forced to close; you can't go to a Ford dealer and buy a new truck. They can't raise prices; their prices have effectively been forced to zero!

Any opinion on the deflationary risk of today's monetary and fiscal policy?

1. https://www.elitetrader.com/et/threads/gold-10t-in-qe-and-inflation.342993/

2. @15:30

If the banks don't lend money, and interest rate is low, consumers will hoard cash and the net result is deflation. I doubt there are good brains in the administration to execute the this whole debt programme. This programme is aimed at appeasing wall street crownies than general public.

00wreckless · Apr 13, 2020

I think deflation was an issues in the beginning of March with credit markets seizing up. Now after printing 2 trillion (or more) dollars. I'm not sure it is as big an issue as inflation will be.
I've been tracking Gold Futures and the US dollar. Markets seem to trade what will happen, not what is happening. I think they are saying they are worried about inflation not deflation.

Girija · Apr 13, 2020

Perhaps it is me that thinks market is vastly disconnected from reality.
Case in point a) fed open mkt is doing something. Retarded POTUS seems to think stock market is the real reflection of economy. Remember the first few days when he openly threatened fed chair into submission or I can fire.....
b) we never had trading bots in prior mega crashes and dent to economy.
Stupid leadership at helm.

kmiklas · Apr 13, 2020

Girija said:
Perhaps it is me that thinks market is vastly disconnected from reality.
Case in point a) fed open mkt is doing something. Retarded POTUS seems to think stock market is the real reflection of economy. Remember the first few days when he openly threatened fed chair into submission or I can fire.....
b) we never had trading bots in prior mega crashes and dent to economy.
Stupid leadership at helm.

Yup. Stop trading rationally, and trade the agenda.

tiddlywinks · Apr 13, 2020

00wreckless said:
I think deflation was an issues in the beginning of March with credit markets seizing up. Now after printing 2 trillion (or more) dollars. I'm not sure it is as big an issue as inflation will be.
I've been tracking Gold Futures and the US dollar. Markets seem to trade what will happen, not what is happening. I think they are saying they are worried about inflation not deflation.

The 2T doesn't even get the US to even since somewhere between 6T and 10T has been wiped out from the economy. The economy... that is the economic system, not to be confused with "the market" which is merely one type of asset(inflation). The 2T "should" find it's way into the system, but it will be staggered as government is inefficient in it's distribution.

One must understand there are several types of inflation... asset inflation, cost/price inflation, and demand inflation. Interestingly, cost/price inflation can be further differentiated into cost-push and shortage inflation. The goldbugs always talk cost-push... everything goes up in price, because the value of the medium used to purchase goes down. The world (and now the USA population too!) continue to clamor for the USD.

JMHO