balois

Scary Drop in Velocity of Money: Is Deflation Knocking?

Deflation – prices down, Inflation – prices up?

Top post, Michael Clark writes: “If the price of oil is going up and people are driving less and not buying oil, how can oil keep going up.” His answer is: “Manipulation”.

No wise guy here, but is this general wisdom correct? I do not think so. Prices – or better costing and pricing – of consumer goods can take on a life of their own, not necessarily linked with inflation/deflation (of money supply, debt, credit creation).

Sure, if less buyers are showing up at my gas station, I may try to keep on selling the same quantity of oil by lowering the price. But so does my buddy across the road. At some point, though, we are both unable to cover our fixed cost and stop the ruinous competition and actually increase prices to try to restore our margin in order to pay our bills – based on less oil sold.

All the way upstream, the same may happen: transport cost, storage, refining, repairs and maintenance cost must be distributed over – or covered by – a smaller cake of oil sold, hence cost per unit sold go up and prices may be adjusted – up.

When times are tough and governments are lacking money, it is also know that they increase taxes, royalties. So my cost go up even though I sell less oil.

And lets not forget: Cost may increase, irrespective of the quantity of oil sold, due to ever increasing environmental, safety, health concerns and related laws and regulations.

The same can affect a multitude of everyday products, construction, manufacturing, services. Hence the consumer sees prices going up although more foreclosed houses are lining his street and jobs are lost at a fast clip. He lives inflation during depressing, deflationary times.

Have a good day

The Presidential Speech, in Context

Unfortunately can only second what azcaballer and icandoitdon wrote. Spot on.

As a foreigner, residing abroad, but with longstanding ties to the US and admiration for the American people and the core values of this great country, taking advantage of the recent Dollar blip, I have sold my Tips. I am holding the cash equivalent in Euros, for the time being.

Why? I ve completely lost faith in anything coming out of Washington at the moment, to the point of instilling fear for the safety of what used to be part of my untouchable nest egg portfolio, Treasury Tips. And President Bush' speech yesterday made it even worse. 700 Billion or not, it does not really matter. For simpletons like me, he can utter anything he wants, trust is gone, I just do not believe this man.

Have a good day

Wake Up America, You’re Sinking

Wow, User 242513, Why are you still in Holland?

Btw, professionally I ve spent 15 years resident in the US of A, about 10 y on missions in other parts of the world and since 15 y in Europe. So dont get me started. I may have a big surprise for you: The best and the worst can be found anywhere. Extreme examples galore. Only as far as income tax filing obligation for his citizens and green card holders is concerned, Uncle Sam is tops with his world wide reach.
I am not so sure what you mean by "European" Health Plan. Any decent employer in France, the UK, Switzerland and so forth will subscribe to extensive private coverage, valid European wide or worldwide, depending. As an individual you can also get additional coverage here www.ihi.com/ (I am not an insurance sales guy and have nothing to do with IHI)

The Dollar’s Excellent Week

You only need to go back to the year 2000 to see that you need to dole out a whopping 55 % more in US Dollars today to buy 1 Euro. In the past 4 decades, the Dollar lost up to 80 % of its value vs. the Yen, Swiss Franc, Deutsch Mark and then Euro.

So I suggest you hold your horses and get down to earth before you go all giddy about this mosquito bite size blip of Dollar x-change advance. A juicy mango the Dollar is not – for a very long time to come - unfortunately. Where are you, Paul Volcker!?!

Have a good day

Is Bernanke Hinting Something About the Fed's Rate Plans?

Lex Lux writes above:

“..freely admit to very limited knowledge..”

Do not despaire - instead you have a full bag of the most precious commodity in the world: Common sense!

My mother tongue is not English but listening to Uncle Ben, his speech appears to me thinly veiled panic speak. Burning the deck chairs on the Titanic. To keep warm pending the sinking of the ship.

I never thought I utter these words but why not cutting this agony short and nationalize Wall Street? The American and other people around the world would be grateful. They will have to pay the bill anyway. And government bureaucrats can hardly do worse. And they would be far less expensive. De facto they are in charge now already. One can reprivatize later but in the meantime, this would be a formidable opportunity to do away with arsenals full of weapons of financial mass destruction in control of private armies of mercenaries, posing as “investment bankers”.

Have a good day