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Deflation

The dollar will die a slow deflationary death.The trajectory of the DXY will be determined by the battle between inflation and deflation. If the narrative of sustained long-term inflation prevails, it will be dollar positive. The Fed is desperately trying to create inflation in this highly indebted economic landscape because inflation erodes the real debt obligation of debtors (the biggest debtor being the US government). In the short-term the inflation narrative could aid the DXY but over the medium- to longer-term the DXY is expected to sink... The moves in the bond market this week has also reflected that the market is starting to buy into the Fed transitory inflation narrative and that interest rates will remain low for the foreseeable future, despite Janet Yellen's rubbish remarks on interest rates as of late. Over the longer-term I expect 10-year treasury yields to remain in this downward deflationary channel. Like all the debt supercycle's we have had in history, this one will end just like the rest of them, with deflation. The velocity of money will bottom out (MV = PQ) and central banks will find themselves in a liquidity trap. The Fed will continue to create deflation with the continued misallocation of capital into overpriced assets. Enjoy the ride to global Japanification people!
TVC:DXYShort
by GustavFourie96
3
Gold VS. USD THE HIGH IS IN AND A MULTI BEAR MARKET HAS STARTEDThe high is in. my target was off as price shot higher. the reasons are interesting BUT i find gold and social mood in the current cycle is negative...deflation will kick in soon perhaps with wild bouts of hyper inflation swinging in and out!!! non the less the scary part of this story is the rise of governments authoritarianism and pervasive surveillance all round abuse of peoples freedom. lets keep our ear to the ground and see what else will reveal its self in the coming days, weeks and months!!
OANDA:XAUUSDShort
by UnknownUnicorn1530896
BTC & the Dollar - 2010-2020 correlationsThis analysis has most probably been done before, I haven't checked. This is what I've found while charting the DXY (US Dollar index, shows the relative strenght of the dollar against a basket of other currencies). Like many assets, Bitcoin has been doing great against a weak dollar, and it has been doing poorly against a strong dollar. That's what you can see on the chart. Weak dollar = Bull market, Strong dollar, Bear market. At first I thought this would only be true for the last BTC cycle, but it appears it has proven to be true for all of BTC's existence. I only checked on the BLX though, so this goes as far as 2010. Can it help us predict the price of BTC in the next months ? Well, if you can read the DXY chart and predict the outcome, probably, but that's beyond my powers :) Many market participants seem to believe the dollar is weakening & inflation is inevitable because of money printing. This could be true but that's a short sighted view in my opinion. Inflation depends on many other factors, not just money supply. Energy cost for example, and energy costs are low for now (remember the oil crash ?). So my best guess for now is that the DXY could simply range here between 90 & 95. And according to the chart & correlation, the 2013 Bull run happened in a ranging DXY environment. So, even though we're close to support on the DXY and could see a bounce here next weeks, as long as we're staying within a tight range a bull market still looks possible to me. You can refer to my previous articles (links below) for some info on the BTC cycles. I think the OBV analysis is the most relevant for now.
TVC:DXY
by Harry_Seldon
3
$1 Copper by 2025Time Fib plus a descending triangle plus some economics about commodity prices and the deflationary dollar for the next 2 years; all that says that copper is dropping by 43% from its current price at $2.5 per pound, reaching $1.42 by the end of 2022. This breaks the descending triangle downward setting a target of $0.83. It sounds crazy, but I'm simply looking at the chart. The Fib zones time the reversal to take place in late 2024 early 2025 where the nearest resistance is the $1.25 to $1.42 range.
COMEX:HG1!Short
by TechNerdOmar
1
Money Supply, Velocity, Inflation, Rates & the Federal ReserveI was taught in undergrad that adding to the money supply is inflationary . The logic was, you print more bills; the existing currency gets diluted in buying power. Following the ‘Crises of 2008’ the Fed launches Quantitative easing and purchases long term securities increasing the money supply and lowering rates. This activity would result in more investment and encourage lending. Keep in mind the lever the Fed historically wielded was changing the short-term interest rate, so by lowering the discount rate that banks pay on short term loans from the Fed, the Fed is able to provide liquidity and – ease. Monetary Policy's version of stimulus. Quantitative Easing was much more potent and was a lever that enabled much more control for the Fed, and control over a longer time frame. Keep in mind the mandate of the Fed: Maximum Employment Stable Prices Moderate Long-Term Interest Rates One can see that the Fed's tool kit was easily justified by the Board of Governors as they sought to fulfill Congress’ mandate. Not to mention the stability here is global, at least the Fed is responsible for keeping everything stable. This status for America globally is a great privilege. Many Americans are not cognizant of what this affords to us as individuals in this nation. QE did result in in inflation, but the environment has not been unruly with any problematic inflation , and we certainly did not get any Hyper-Inflation like so many economist were shouting about, especially those grounded in traditional economic ideology. This new environment has me wondering again how this will all play out of course as the parts at play are each so multifaceted. With that said, I would think we see inflation rise especially with the macro environment of easing and potential fiscal policy and the Federal Funds rate being this low. With that said, the biggest concern I have with this thought process is curiosity of what was stated by Jerome Powell in the last FOMC meeting – rates will be at these levels near the zero-bound (limit of 0% for short-term rates) with the Fed setting a higher target for inflation . Keep in mind the Fed has never been able to hit their recent targets for inflation for years, yet now they want the target even higher. With that thinking in mind, he seemed to indicate the reason the Federal Funds rate can be so low for so long is because inflation will not even be getting to their own target, just as it hasn't in recent memory. Again I still have a bias towards a weaker dollar and inflation – I am however readily willing to change my mind on a moments notice here as we see what actually transpires. I have an alternative to all the "deflation" vs "inflation" debates - an environment that will be stable with just modest inflation. Please be sure to comment, debate and let me know where you think the dollar goes next.
FRED:WM2NSEducation
by ZenMode
88
Nothing Changes - The Next Mortgage CrisisWe all know it's going to happen, just a matter of when, it seems. Day after day, I come across different traders who have their own narratives about when this debt crisis will finally rear its ugly face and we will be faced with a sober reckoning of decades of monetary irresponsibility and irresponsible allocation of scarce resources to state capitalist companies that veer further and further away from sensible business decisions. Some of us seem to think that it is right around the corner, and that we've got to stack gold, silver, and/or bitcoin to prepare ourselves. Others believe that it's just a deflationary downspiral from here. Most of us seem to be inbetween. For me, I think it is pretty easy to see. And though my indications would otherwise be seen arbitrary or even nebulous, I think there are some important facts that we have to make clear so that the future isn't as unclear. The first thing I want to bring to everyone's attention is the growing mortgage-backed securities (MBSs) owned by the Fed, and what this means, put simply, for the rest of the economy and our private banks. After the pandemic scare, among everything else dropping, one thing didn't see a drop, but a stark, parabolic rise: MBSs owned outright by Federal Reserve Banks. We saw a nearly 30% rise since mid-march: fred.stlouisfed.org A rise, which had been seeing a gradual, but steepening, fall since February or March of 2018. This means two things: 1. Creditors who owned these MBSs held little faith that they could make passive income from the interest off of these MBSs, and sold them to the highest bidder (always the good ole ' Fed). 2. Creditors, also, had little faith in the outlook for these MBSs since any hope for rising interest rates were put to an end, and the narrative that they will be higher doesn't seem to be coming back for a long time. In my opinion, these hopes will never come back. So how does this affect the banking sector? There's no way they can compete with the Federal Reserve, at this point. If you are inflationary about the future, then you will understand that the Federal Reserve is very deadset on making sure no bubble pops. They will do this by buying up all the debt that they can to avoid default. Unfortunately, this doesn't last forever, and at some point, the Fed is guaranteeing the debt of the whole country, and banks cannot compete with the ultimate market maker and the ultimate currency-producer. For debt-ridden, irresponsible Americans, it will be a wolf in sheep's clothing that seems like a Godsend as every bit of their debt is turned into an asset by the Fed, and even further, as the dollar continues to be debased and "realligned", they will see a steep drop in the strength of their buying power. That's what happens when all of your manufacturing and resources have been imported for decades, and a majority of your skilled workers are foreignborn who have an easy ticket back home where it is much less zany. I think it is a joke to be deflationary with facts like this. The one needle of deflation in the inflationary haystack is that GDP will slow, and the Fed and Congress will be powerless to stop Americans from saving and paying off their debt, which would be a fair point, if every bit of info was against this. Americans are still the worst savers, incredibly indebted, and will look to any handout that they can get. I think the inevitability that negative interest rates are coming will end up benefitting Americans in the mediumterm. Negative interest rate policy, NIRP, will be a reckoning for Americans' lifestyle, that will whither down to look much similar to those in Cuba or Albania during communist rule. Debt will be basically turned inside out into credit, and your debt will be used as a backing to the currency. The more you spend, the better. Anyone who has read about government cryptos and NIRP/ZIRP will understand this. Our monetary system will be backed by debt, much like it already is, but the velocity will be kept up so high that in order to maintain your standard of living, you will have to keep purchasing. Put simply, every month you'll get however many dollars, and there will be a timer on it that will expire after however much time, and you will have to spend it all, or it will disappear. Much like vacation days at a lot of your jobs at the end of the year. Now why would we take a step in this direction? It's only because the Fed and gov't have all interest to do so. Sure, all of our standard of living will diminish, but the Fed will be heroes and be seen as the saviors who helped uphold American lifestyle while the greedy companies tried to steal from us. Everything is in their favor - the government and government-owned media control the placement of the Overton Window. So to clarify, the main reason the Fed will inevitably be the last bank standing will only be due to the fact that they will do everything they can to stop this Everything Bubble from popping, and will gradually, own every bit of debt out there, and have to rely on NIRP to keep anyone from defaulting. The average American, who can't even tell you where France is on a map, or who Robespierre was, will laud NIRP because it allows them to maintain whatever leveraged lifestyle they've been maintaining for decades, without any attempt at saving or financial planning. www.cnbc.com Americans raiding retirement savings to avoid defaults and to stay afloat. www.marketwatch.com "One-third of homeowners have less than $500." "25% of Americans have no emergency savings... 16% have taken on more debt... nearly 1/3 report having lower income than at the start of the pandemic." "Some 95% of workers in low-income households — making less than $36,000 per year — have either been laid off as a result of the coronavirus (37%) or have experienced a loss in income (58%). A quarter of workers earning between $90,000 and $180,000 a year saw an income loss." This is a huge point that deflationists and inflationists alike will use to push their narrative, but only the inflationists are right when it comes to how the Fed will act. Sure, the initial onset of Americans jumping into the dollar is a magnificent tailwind for the DXY, but the Americans who have to endure a new loss of income who are extremely frustrated with how things are going, in tandem, with politicians who are steadfast in trying to bring whatever relief will not bide well for deflationists. We either see growing unemployment, growing social unrest, and everything under the sun that is perfect for a violent revolution and exponential drop in standard of living, or we see what we've been seeing for years - Fed and gov't action to maintain status quo and freebies for as long as their fake currency can stand it. So as unemployment stays steady, standard of living sees a drop, and more Americans save, there will be more of a rush for the Fed to take action and prop up what corporations they can and back whatever debt possible to keep the rusted, empty freight-train rolling at mach speeds. And in short, the markets see no signs of dropping. We might see another big drop soon as people draw from their pensions and 401ks, but technical indicators see further moves up for the major indexes. The time for a big drop is now, and it just hasn't happened - not as violently as many of us initially thought. Going short is a good way to get screwed super quick in a bubble that is everinflating.
FRED:WM2NSLong
by MoneybagsMcGee
1
Analysis of Inflation/deflation and covid-situationInflation: Persistent growth of the price level of a basket of selected goods. Deflation: Fall in overall prices in an economy. Increase in purchasing power of the currency. From deflation to hyperinflation, the historical route: 1. Central authority inflates paper assets, i.e. bonds, stocks and derivatives. Effect is capital inflow from real economy into paper assets. This leads to a deflation in real assets. This deflation is a result of a fall in demand in the real economy (money rather being displaced to paper assets). 2. Commodity prices lower than production costs. An effect of less money being spent in real economy. Commodity prices fall to attract/please customers demand-level. Counteracted with more monetary easing. _Security purchasing_. 3. Commodity producers either go out of business or cut production. 4. Point three leads to commodity shortages (creating excess demand), which in turn leads to spike in price. 5. This leads to a commodity-led inflation of prices. Capital flow from paper assets to real assets. Capital which has been bound up in the stock market will now flow into real assets. Exacerbating inflation in congruence with the degree of monetary easing done during deflationary period. 6. Loss of confidence in currency. This leads to a flux to hard assets!!! 7. Hyperinflation ensues. Theoretical basis for inflation/deflation (quantitative monetary theory): -The quantity theory of money states MV = PY (money times velocity = price times output). -This is the theoretical basis of the proportional increase/decrease in monetary stock/velocity. If perfectly inverse proportional, price times output stays constant. By this identity (formula) we can of course also see how inflation happens: If money increases while velocity and output stays constant, price will increase (inflation). Where are we at? -Degree of deflation can be represented by velocity of money. This metric has been falling sharply recently, and has been falling since -08 atleast. Central authority counterbalances this with inflationary measures like monetary easing. We can see by M2 Money stock and M2 Money velocity that both of these charts has gone full vertical just recently (january -19). -We would expect commodity prices to fall as well as security prices to raise. A study by Peter Oppenheimer (october -19), chief equity strategist at Goldman Sachs, shows that commodity are prices down 50 % since -08. While asset prices are up 300 % during the same period. Covid-19 lockdowns will effectively arrest the situation and temporarily kick the can down the road. How? -Less people frequent stores and places of physical trade: This leads to lower velocity of money. -By creating a supply shock/shutting down the economy: A supply shock happens when there is a lower output (Y decreases/GDP decreases). This leads to higher prices (see equation above). --> Effectively M (UP) x V (DOWN) = P (UP) x Y (DOWN). --> Lifting shutdowns will have an adverse effect on the deflation/inflation problem. _Dynamic inflation goal_… need I say the rest.
FRED:M2V
by wgpeders
1