Historical inflation rates... our future?

[hotbmw]

HELLO, you can lock rates in the US for 30 years now at 5.25%, BUT capital values have fallen 50%.

GO ahead, borrow more and lock it in Eddie, but don't complain when the property falls 50%. PS Do some homework on the correlation between unemployment and property prices, it trumps interest rates every time.

lioness as i recall just recently u didnt have these views.

READ WHAT IM SAYING.

in 1 year or so the property market would have dropped a bit.
ur never going to pick the bottom so it may be close enough in a year.
interest rates will not be historical lows forever.
time the purchase of a home together with a low fixed interest rate.
I KNOW ALL ABOUT DEFLATION and INFLATION.
I didnt say we have inflation now.
im saying its inevitable that we will have it in a couple of years.
BUY IN A YEAR AND LOCK THE INTEREST RATE IN EDDIE!!!!!!!!!!!!

 

[lioness]

lioness as i recall just recently u didnt have these views.

READ WHAT IM SAYING.

in 1 year or so the property market would have dropped a bit.
ur never going to pick the bottom so it may be close enough in a year.
interest rates will not be historical lows forever.
time the purchase of a home together with a low fixed interest rate.
I KNOW ALL ABOUT DEFLATION and INFLATION.
I didnt say we have inflation now.
im saying its inevitable that we will have it in a couple of years.
BUY IN A YEAR AND LOCK THE INTEREST RATE IN EDDIE!!!!!!!!!!!!

Ok, so explain to me how inflation will beat deflation and don't just state printing money will cause it. Can't you see US unmployment??, it has now reached levels of 1974 and rising. 7.8% uneployed and expected o hit 15% byt the time it is finished. How will inflation beat that??

 

[hotbmw]

Ok, so explain to me how inflation will beat deflation and don't just state printing money will cause it. Can't you see US unmployment??, it has now reached levels of 1974 and rising. 7.8% uneployed and expected o hit 15% byt the time it is finished. How will inflation beat that??

where did u get 15% from???
everything i am reading is estimating around 10%
u think australia will see 15% unemployment rates also?
if its 15% here we may as well shut up shop!

my thoughts are based on unemployment rising by a mere 2% in 2009 and 2010 will see some stability, a floor in deflation in asset prices due to artificially LOW interest rates will prop up all assets, cheap credit will spur on lending again in 6 to 12 mths, savers will enter into the property market or share market to acquire tax friendly dividend returns as interest rates will be so low for savers. also the govt stimulus packages would have kicked in, there will be a massive increase in the money supply, govt will print print and print.....

i dont see how we can have deflation in 2011+

 

[GumbyLearner]

I appreciate the fact you started this thread HotBMW.

If you think deflation is imminent, then invest in physical assets.

Otherwise, buy bullion and gold stocks!

This is all very generalized ****!

DYOR

 

[hotbmw]

I appreciate the fact you started this thread HotBMW.

If you think deflation is imminent, then invest in physical assets.

Otherwise, buy bullion and gold stocks!

This is all very generalized ****!

DYOR

Hey Gumby
Yeah i bought physical gold and silver a few months back at a nice price.
I will accumulate more if i can buy for under 800 an ounce (gold) or under $11 silver

 

[joeyr46]

I'm right with you Lionness deflation is the destruction of asset prices or the increase in value of dollars. Lets be honest it has already arrived. Your dollar already buys a lot more than a year ago. Everyone thinks the Government can control things nothing could be further from the truth Interest rates are low now because their is no demand (at least from people banks will lend to) People have stopped borrowing because of fear and the more the government interferes wit stimulus packages etc the longer it will be before we have any confidence to borrow. Hotbmw it is a regular part of the investment cycle and the trick is to recognise when it is over no need to panic and buy on the way down because we dont know how low prices will go (or how valuable our dollars will become ) Will the government print enough money to reinflate ? Maybe but that will take time to work thru the system and the excessive debts have to be worked off first before any infaltion will occur. After the boom in house prices in the late 80's it took nearly a decade before they started to run again. Picking bottoms is rarely profitable

 

[Stormin_Norman]

consumer prices have been held low thanks to cheap chinese imports.

the hidden inflation, as was mentioned earlier in the thread has been asset price inflation. something which isnt measured, or at least isnt the concern of the government and seemingly the central bank either.

 

[joeyr46]

consumer prices have been held low thanks to cheap chinese imports.

the hidden inflation, as was mentioned earlier in the thread has been asset price inflation. something which isnt measured, or at least isnt the concern of the government and seemingly the central bank either.

Not consumables especially imports because they can go up or down dependant on exchange rate and the other country's economy
Assets ie debt obligations, real estate and shares
1) Debt obligations are falling as confidence in the borrowers ability to pay Banks unwilling to lend as much on assets as previously. The ultimate fall in debt obligations is when they default totally like Allco
2) shares (I dont think there will be an argument to this class of asset
3) Houses (Always difficult as they are so varied anywhere up to 15% depending on area at the moment although some seem to have held up firmly at this stage
4) Commercial real estate (Once again difficult to assess but have seen some fairly substantial falls locally and the RE Trusts are having trouble getting loans and there share prices are reflecting hefty falls in their portfolios already
The other thing that points to deflation is money volatility ie when people start taking a bit longer to pay so everybody does until someone defaults and credit is destroyed or there is less money to buy the same assets (Deflation, assets cost less)

 

[joeyr46]

Hey Gumby
Yeah i bought physical gold and silver a few months back at a nice price.
I will accumulate more if i can buy for under 800 an ounce (gold) or under $11 silver

Explain why you would buy gold and silver unless we have inflation or are about to. Cash is king in deflation I always thought ?
So what is your definition of deflation?

 

[gfresh]

It is a hard one to guess the outcome at the moment. Pure logic says printing more money, and keeping rates low eventually leads to highly inflationary periods. General economic volatility and uncertainty can also lead to high interest rate periods. But these are quite different times.

From history we know that deflationary periods are quite rare and last generally for short-periods of time (some exceptions exist). Because the relative shortness of these periods, I'd be considering the present deflationary period as short-term, and weighting more towards an inflationary scenario in the medium term.

That said, rather than guessing too much whether we are going to be entering a drawn out deflationary period, or a large inflationary one, and putting all eggs into either basket -- the best course of action would simply be hedging for both??

* For inflation the best hedge appears to be hard assets, or holding debt in previous dollars, or gold if you swing that way.

* For deflation, from my understanding, it seems the only thing that really beats this is holding cash to buy assets eventually at lower prices.

So say, you'd maybe hold at least 50/50 assets vs cash, or weight into which you thought was more likely going forward.

I think Australian's are a bit lucky in some ways that we're likely to get by fairly well if we enter a large global inflationary period. We've in fact seen this in effect leading up to 2007, so have much recent history to go on.

Australian wages have been fairly good at keeping up with inflation over recent history, unlike say the US. For those that keep jobs, wages *should* keep track up with inflation, meaning paying off debt in old dollars could be easier.

Rent is likely to closely track CPI as it has done for 35 years. Large rent rises could be seen during high inflation, meaning holding a property (to live in) may in fact be more beneficial rather than renting. High interest rates would lead landlords to pass on interest costs, as well as their own higher living costs through higher rent.

A lot of profits come into the country from our mineral assets. Holding shares in resource stocks could be beneficial as overseas interests hold companies that benefit directly from rises in mineral prices. Already some mineral prices seem to have bottomed, seemingly indicating inflation is not far away.

High inflation may cause overseas parties to purchase $AUD to hedge against high inflation in their own country, as we are seen as largely a resources based country. We saw this with our dollar rising as the minerals boom rose as well. In turn a higher $AUD can lead to certain imported goods being cheaper, such as electronics, cars, and other such items. This can help offset higher fuel, food, and other prices.

 

[brty]

During the seventies inflation remained above interest rates for quite a few years. Only from about 1980 onwards were interest rates above inflation.

Why can't it happen again??

Governments printing money is not going to lead to deflation. In the 1930's governments contracted spending, lead to the depression. Helicopter Ben is well aware of this, so is Kev.

The only question to ask yourself about what is ahead, is What is/are the governments of the world doing, are they contracting spending or expanding spending???

There is a lag time for spending to take effect, just like the collapse in asset prices happened a year after the interest rates were rising.

brty