inflation despite idle capacity

[ERICOPOLY]

I was watching a video with Poppy Harlow interviewing WEB that was given post-AGM.  He says that he has to raise prices to keep up with rising input costs.  This despite idle manufacturing capacity.

 

I think idle manufacturing capacity is central to the deflation argument?

 

[Parsad]

Idle manufacturing with inflationary inputs is simply stagflation.  Over time, as the economy slows due to the inflationary costs associated with manufacturing, you will get deflation. 

 

We discussed this at our AGM in response to why our thesis of a current environment of stagflation differs from Prem's view of deflation.  We used an analogy of a chess game, and our limited ability to see only 2 or 3 moves ahead, while Prem's deflationary view was 6-7 moves ahead. 

 

We are already experiencing a stagflationary environment...especially on global terms where rates are starting to rise and the economy is slowing.  Parts of Europe will be facing negative growth as they balance budgets due to austerity measures.  The weaker U.S. dollar is actually preventing this here to a certain degree, but deflation will come as the global economy continues to slow down over the next couple of years.  Cheers!

[Myth465]

I believe so. I think the major piece of the argument though is delevering and lack of access to credit and debt which has fueled growth for the better part of 30 years. It has also masked the lack of a raise for Joe Six Pack. Joe is now paying off his debt. I believe Buffett is dealing with a failing dollar and higher import costs, which is what the Fed wants to fight deflation.

 

Thats my 2 cents. So many inputs which all intertwine. Poppy is a pretty funny name, though I guess my name is pretty funny. Parsad, what do you read and what economists do you like?

 

Everyone has a theory, its so tough to sort these things out, but quite interesting nonetheless.

[link01]

I was watching a video with Poppy Harlow interviewing WEB that was given post-AGM.  He says that he has to raise prices to keep up with rising input costs.  This despite idle manufacturing capacity.

 

I think idle manufacturing capacity is central to the deflation argument?

 

 

inflation/deflation/stagflation? too many smart people on opposite sides of this argument, which has enough paradoxal elements to make your head spin. we're approaching the crossroads but it doesnt seem fore-ordained yet which direction we go. hence, the fence where i'm concerned.

[Parsad]

inflation/deflation/stagflation? too many smart people on opposite sides of this argument, which has enough paradoxal elements to make your head spin. we're approaching the crossroads but it doesnt seem fore-ordained yet which direction we go. hence, the fence where i'm concerned.

 

True!  Investors shouldn't care one way or the other.  You buy when something looks very cheap, and you sell as it approaches intrinsic value.  Worrying about anything else is a mug's game...but it is fun to speculate!  ;D  Cheers!

[prunes]

The Austrian economists have an interestin view of deflation: they view it as a normal reaction of the economy to it's previous exuberance. I think a moderate amount of deflation is OK and that the fears people talk about are overblown somewhat. It is harmful for people (and countries) that are overleveraged though. I think the Fed is afraid enough of deflation that politically it is impossible, but Japan experienced it despite massive intervention so what do I know?

 

[Myth465]

The Austrian economists have an interestin view of deflation: they view it as a normal reaction of the economy to it's previous exuberance. I think a moderate amount of deflation is OK and that the fears people talk about are overblown somewhat. It is harmful for people (and countries) that are overleveraged though. I think the Fed is afraid enough of deflation that politically it is impossible, but Japan experienced it despite massive intervention so what do I know?

 

 

I think deflation is a nightmare for the west. Its not bad for us. We presumable have more assets than liabilities (and probably liquid assets), but it sucks for Joe inmo. It also kills the fuel which has lite the match of the US economy, Consumption. An ever growing pile of debt against a fixed income sounds terrible.

[scorpioncapital]

Almost all central banks have a *stated* goal of 2%+ inflation over the medium-long term. Since inflation or deflation is entirely man-made and the goal is stated, the answer appears straightforward enough.

[Santayana]

I think the deflation argument centers around debt destruction and dollar demand.    Not really dependent on capacity, or even supply and demand of the end products.    We saw what can happen in 2008-09 when demand for dollars to pay back debts started to bring on deflation.  QE interrupted that process, but I don't think it's done.  I'm positioned very defensively right now.

[ERICOPOLY]

I know what I saw in 2008-2009 but I don't know how much of it was due to dollar demand for repayment of debt or just outright panic and pandemonium.  Everyone was worried about being laid off at that point and were delaying purchases -- if we all do that the prices will need to fall.  But then there was also the debt repayment that you mentioned.