Inflation or Deflation? 1923 or 1932? What will it be?

I have been a proponent of inflation being the greater risk to society than deflation for quite some time, so all said, I am in the ‘inflation is the true risk’ camp. Interestingly, it is starting to become the topic of the day now and apart from my feelings that a fixed rate now is a good idea, there are two debates from the major money channels below, one is from Bloomberg the other CNBC. They are well worth watching.

The first clip from Bloomberg has Tom Keene, Economics editor and Alan Blinder (formerly of the Fed)  of Princeton University.

The next clip is from CNBC on the same topic, featuring Larry Kudlow, Michael Darda, MKM Partners; Joe Lavorgna, Deutsche Bank and CNBC’s Sharon Epperson.

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Fancy a bit of inflation? What does a $700bn bailout and the 6% national wage agreements have in common?

There are two types of inflation, ‘headline’ and ‘core’. Put simply headline inflation takes into account everything, petrol prices, the cost of food etc. it’s cosidered volatile (lots of up and down) and therefore is not used for economic forecasting. Core inflation however is used all the time, because it is considered more consistent and measurable.

So let’s take a look at things that might cause inflation? Well, for a start the US plan for a $700 billion bailout is going to cause inflation, the cost will effectively be $2,300 for every man woman and child alive in the USA. That is quite a consideration, and it is coming directly from tax money, the question I would have as an American would be ‘Why will I give $2,300 dollars to banks who didn’t and likely never will repay me?’, adopt an underwriting approach to it and yo would quickly give it the stamp of ‘failed application’. However, the coffer strings are not …

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Your loss my Grain.

I have spoken in length about agflation in 2008 and as much as I’d love to to consign the whole topic to history, however much like a few choice people I know, it simply won’t go away, even though it would be great if it did.

Most of the coverage in the press is focusing on biofuels and the fact that they are using up human consumables to make car consumables, however this is really only a partial answer, what is likely the true driving force is the emergence of Western style diets amongst the BRIC nations (Brazil, Russia, India, China) and other emerging economies. The breakdown is simple, staple foods and their availability are under attack from biofuels but its animals and the increased consumption of them that are causing the most serious shortfall.

I’m not about to go all pro-vegetarian/vegan/macrobiotic or anything on people but there is a strong argument for a reduction in meat consumption apart from the obvious health risks that a meat heavy diet brings with it. The issue in the here and now is …

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Will we get a rate reduction? Not if the ECB does it’s job we won’t.

I have seen articles in the news and economists from large lending institutions are saying they believe we will see two rate reductions in 2008. There are various reasons being put forward for this, and personally I would be delighted to see this happen, however, the flip-side is that if the ECB drop rates then to a degree they will just undermine their own credibility. Why? Because the ECB are not there to save the market just because there is a credit crisis, they were willing to inject liquidity in order to ensure that credit kept flowing, but in the area of Base Rates their only tenet is to control inflation at ‘near or just below 2%‘.

Rate reductions are inflationary, more money starts to move about the economy and there is an upward movement on prices, at the moment inflation is already above the stated target so cutting rates would only exacerbate that, if we get a …

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Will we get a rate reduction? Not if the ECB does it's job we won't.

I have seen articles in the news and economists from large lending institutions are saying they believe we will see two rate reductions in 2008. There are various reasons being put forward for this, and personally I would be delighted to see this happen, however, the flip-side is that if the ECB drop rates then to a degree they will just undermine their own credibility. Why? Because the ECB are not there to save the market just because there is a credit crisis, they were willing to inject liquidity in order to ensure that credit kept flowing, but in the area of Base Rates their only tenet is to control inflation at ‘near or just below 2%‘.

Rate reductions are inflationary, more money starts to move about the economy and there is an upward movement on prices, at the moment inflation is already above the stated target so cutting rates would only exacerbate that, if we get a …

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Learn a little about gardening to avoid inflation.

I know in advance I’ll draw some laughs (the ‘at’ kind, not the ‘with’ kind) due to this post but I do think it’s relevant. Today I am telling people to learn a bit about gardening, specifically, market gardening, in order to avoid getting hit by ag-flation. Agflation/Ag-flation (because it’s not an official word yet I don’t know if requires a hyphen or not) describes the current phase of world food commodity prices, the inflation is being driven on agricultural products, rice, corn, wheat, meat etc. So expect to be paying more at the till for every kind of food, in fact there have been riots in Mexico and Indonesia already because of food prices, in Haiti they stormed the presidential palace in Port au Prince and dethroned a leader.

Egypt has suspended rice exports and is trying to organise a rice for wheat swap with Syria, Ukraine is in talks with Libya, and the Philippines are in talks with Vietnam, this …

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