Topic: Are we really heading towards hyperinflation or towards deflation? - page 2. (Read 236 times)

You say that people don't take a loan to spend and thus they have no more money to spend.
I say people are reticent on spending and thus they don't take loans.

The low demand for loans is a result of decreased will to consume and to spend, not the other way around, you can have zero interest mortgages if people don't want to buy a house they will not. The interest rate comes into the picture and tries to fix this by offering cheap loans, but if even cheap loans are not stimulating consumption then there is zero you can do, you can't force people to spend money. Well, you can by outlawing everything they own and forcing them to change everything in their house, even the house but we're still talking about normal measures, not gulag-style economic reforms.

Now, to the numbers:
https://www.bloomberg.com/news/articles/2020-10-09/japan-s-savings-rate-hits-20-year-high-as-govt-cash-gets-banked
Japanese are saving, they are not spending, they hold $9.7 trillion in house savings, they have money to spend but simple, they don't want to, they have no incentive to take loans and to spend more, simple as that.
Besides, there is a huge difference in mentality, offer a loan with a two-year grace period and then 0 interest loan to people from Japan, Canada, Germany, Mexico, and Botswana and let's see how many will and what will they spend it on. 

Not really. It's not me. I've been just summarizing what Alessio Rastani says in the video.


Prices go down because people don't have as much credit and therefore don't have as much money to spend. The fact that restaurants have to lower prices is a consequence of the fact that less and less credit is being given in Japan.



Source.


You might have a valid point here. I haven't found reliable data but I don't thing they are giving many credits to people in Venezuela. Supply and demand have to be factored in the equation.


Yeah but here we go again. If people get credit people will spend more, so companies will raise prices instead of cutting costs.

He's betting the crowd because of credit? Well, if that's been the case then the inflation should have been slowed down for so long. But it's a fact that each country has to go through, inflation.

As for Japan, there is no doubt that they are one of the best economics and that's why they've defeated inflation and slowed it down. But that doesn't mean that they won't have that little percentage in the next years.

You're putting too much emphasis on the credit supply and too little on the prices and consumer behavior.
In the exact link you provided about Japan you will see the main reason for deflation and why it will not go away


You can't have inflation unless the prices of goods go up, no matter how much money you print if the demand and offer keep the same balance at the same levels you will not experience inflation. The best example in this is Venezuela, inflation isn't the result of only printing money, is the result of no goods available on the market, the increased difficulty in procuring those is what's driving that inflation, if tomorrow you would have thousands of tons of goods shipped there for free you will see suddenly the inflation rates going down as there will be no more pressure on the prices, no matter how much money gets printed as demand is satisfied there is no uptrend.


There will be no inflation without people spending, and if people are reticent on spending companies will look rather on cutting costs than on raising prices, and cutting costs mean that there is huge pressure on trying to raise wages, with no wage increase insight consumers are worry of spending, and the circle is complete.

On the other side (of the ocean), when you print money and distribute them to anyone who has a name  there is no way that money will not be spent on anything that can be bought, with a chronic shortage of merchandise on the market huge demands that couldn't have been satisfied even in normal times will of course break the balance for now, so if more airdrop checks come you will see more inflation, no matter what the FED does, they can play with the rates all day long, the bird has flown, there is nothing they can do.

If they keep injecting money, they will head there some day because this is really different from what they did in the past because the stimulus as of this time is much bigger compared to recessions and housing crisis back then. It will be an implosion that will happen unless they find some solution on what to do with the large amount of money injected.

Or like they did in march 2020 money flowed out of all financial assets. The good thing about 2020 was that it recovered after a short time, with Bitcoin being the big winner.

So that was what I was commenting on in the last part of the post, which I think will happen if the author of the video is correct in that we are heading towards deflation and not inflation.

I'm expecting a housing market crash to occur around September-November this year, if the past repeats itself, bitcoin will crash around the same time by about 70-90% like we did in 2017. After then it'll probably recover or stabalise (and if this happens, the drop will likely stay above $15k after a run off peak just before it).

What you're talking about is EVERYONE becoming stingy like they did in 2008 (every asset class seemed to have dropped around then and everyone runs to physical cash if they can). The UK started throwing money at people to try to get stuff going again around then too (ppi seemed to coincide with it).

A lot of investors that would've taken on risky investments were probably very surprised one of them paid off and just vanished for a while in the hopes they didn't lose it - with credit default swaps and other derivatives.

I am going to summarize the argument of a video I just watched. I watch a lot of videos on Youtube that I don't think they are worth summarizing here but in this case the argument used has made me think and I want to expose it.

Why I am Betting AGAINST the Crowd on This. Alessio Rastani.

Is all the money printing going to cause hyperinflation in the next few years? No, we are more likely heading towards deflation.

We are likely heading towards an economic depression and History has taught us that recessions and depressions are deflationary, not inflationary. The previous recession we had in 2008 was deflationary:



Inflation dropped massively and the same happened in the year 2000. Instead of seeing rising prices in the next economic recession or depression we are likely to see falling prices.

Another reason why we are heading towars a recession in the nexts few years is because bonds have likely bottomed and have started and uptrend.

But what about all the money that has been printed?





Japan has been massively printing money for several years but have they seen inflation? No.

In Japan, They’re Still Worried About Deflation, Not Inflation

In a recession or a depression, the banks usually cut the supply of credits. We have to bear in mind that for inflation to ocurr we need and increase in the supply of credits. Do banks like to lend money to people during a recession? No. They know people are more likely to default and not pay them back. In those kinds of situations (recessions and depressions) they reduce the supply of credits, they make it more difficult for people to borrow and that kind of action causes falling prices.

That's why in the 2008 recession we had what was called the "credit crunch".

There is something else that happens during recessions and depressions: money goes out from risky assets to cash and the USD gets stronger.

The majority of people out there think the dollar is doomed but because they are expecting hyperinflation. All the media talks about now is inflation and not deflation. So people are expecting a crash in the USD, which is the opposite of what he is expecting. In fact, he is betting against the crowd in this point. Then he explain that as long as some technical (analysis) points are not broken he remains bullish on the USD and bonds.

So much for the summary. The truth is that I had not seen anyone talking about this. Everyone talks about inflation or hyperinflation without taking into account the credit crunch and the historical deflationary nature of the crises.

Another thing to analyze, if he is right, is how Bitcoin would behave in a deflationary environment. I believe that at the beginning of a crisis it would happen like in March 2020, that people would panic and sell fast to get cash. But once the initial scare passed, money would return to Bitcoin, which is an asset that is perceived increasingly as safe. Also, traditionally gold was a safe haven during crises, and I think it will be replaced by Bitcoin.