Garth Turner finally talks about the possibility of deflation here on his blog at http://www.greaterfool.ca/
As I mentioned in the comments, everybody and their mother were talking about higher interest rates and inflation as a foregone conclusion! If the market has taught us anything, it's that anything is possible! There is more than one way to skin a cat!
If somebody believes in higher interest rates and an inflationary future, then this is their chance to take on massive debt! There is no better opportunity to lock in a million dollar loan at a rock bottom interest rate and to use those inflated future-dollars to pay everything off in no time flat! If you believe in higher interest rates and inflation then the people who are putting 5% down and mortgaging the rest are the "smart money"!
Heh. I doubt it!
http://www.theglobeandmail.com/repo...king-root-in-global-economies/article1306056/
Disclaimer I have no clue what will happen in the future. The consensus is always wrong and having everybody tell me that higher interest rates and inflation was "inevitable" just made me chuckle.
http://finance.yahoo.com/tech-ticke...st-Rates-Are-Going-Higher?tickers=xlf,dia,spy
Deflation in Japan started in 1990s. The government and the Bank of Japan reduced interest rates to 0%. This tactic was unsuccessful for over a decade and ended in the summer of 2006. The 'zero-rate policy' was deemed a failure.
Economics have cited the following reasons for deflation in Japan (some of these may sound very familiar to Canadians):
Falling asset prices including real estate. Japan experienced a massive real estate bubble that peaked in 1989. When assets like real estate decrease in value, the money supply shrinks which is deflationary.
When real estate prices collapsed, the banks who loaned money for the purchase of said real estate found that their mortgages weren't being paid. They tried to collect on the collateral, but it wasn't enough to pay off the loan. Banks then delayed these decisions in hopes that asset prices would improve. Some even made more loans to mortgage-holders to service the debt they already had (!) thus maintaining an "unrealized loss" (at least until the assets were sold off and the loss realized). This exacerbated deflationary forces.
As banks continued to rack up non-performing loans (no payments and not written off), they handcuffed themselves since they had to increase their cash reserves (to cover the non-performing loans) and were unable to lend any more money.
As the population paniced; fearing the collapse of the financial system, they avoided entrusting their money to the banks and instead used their cash to buy gold or foreign Treasuries. Again, this exacerbates deflation as the money is not available for lending or economic growth.
The savings rate rises and depresses consumption since the money isn't used in the economy in an efficient form to create new investment.
Japan also continued to import cheap Chinese goods. Domestic producers, in order to match these low (and continually lower) prices decreased prices for many items in the domestic economy and further promoted deflation.
Bill Gross believes that deflation is a real possibility:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEHQiqgK1vdQ
If deflation happens, it will be ugly.
As I mentioned in the comments, everybody and their mother were talking about higher interest rates and inflation as a foregone conclusion! If the market has taught us anything, it's that anything is possible! There is more than one way to skin a cat!
If somebody believes in higher interest rates and an inflationary future, then this is their chance to take on massive debt! There is no better opportunity to lock in a million dollar loan at a rock bottom interest rate and to use those inflated future-dollars to pay everything off in no time flat! If you believe in higher interest rates and inflation then the people who are putting 5% down and mortgaging the rest are the "smart money"!
Heh. I doubt it!
http://www.theglobeandmail.com/repo...king-root-in-global-economies/article1306056/
Disclaimer I have no clue what will happen in the future. The consensus is always wrong and having everybody tell me that higher interest rates and inflation was "inevitable" just made me chuckle.
http://finance.yahoo.com/tech-ticke...st-Rates-Are-Going-Higher?tickers=xlf,dia,spy
Deflation in Japan started in 1990s. The government and the Bank of Japan reduced interest rates to 0%. This tactic was unsuccessful for over a decade and ended in the summer of 2006. The 'zero-rate policy' was deemed a failure.
Economics have cited the following reasons for deflation in Japan (some of these may sound very familiar to Canadians):
Falling asset prices including real estate. Japan experienced a massive real estate bubble that peaked in 1989. When assets like real estate decrease in value, the money supply shrinks which is deflationary.
When real estate prices collapsed, the banks who loaned money for the purchase of said real estate found that their mortgages weren't being paid. They tried to collect on the collateral, but it wasn't enough to pay off the loan. Banks then delayed these decisions in hopes that asset prices would improve. Some even made more loans to mortgage-holders to service the debt they already had (!) thus maintaining an "unrealized loss" (at least until the assets were sold off and the loss realized). This exacerbated deflationary forces.
As banks continued to rack up non-performing loans (no payments and not written off), they handcuffed themselves since they had to increase their cash reserves (to cover the non-performing loans) and were unable to lend any more money.
As the population paniced; fearing the collapse of the financial system, they avoided entrusting their money to the banks and instead used their cash to buy gold or foreign Treasuries. Again, this exacerbates deflation as the money is not available for lending or economic growth.
The savings rate rises and depresses consumption since the money isn't used in the economy in an efficient form to create new investment.
Japan also continued to import cheap Chinese goods. Domestic producers, in order to match these low (and continually lower) prices decreased prices for many items in the domestic economy and further promoted deflation.
Bill Gross believes that deflation is a real possibility:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEHQiqgK1vdQ
If deflation happens, it will be ugly.