by Evan C » Sun Feb 19, 2012 8:36 pm
It will be deflation in the petrodollar core world, i.e. the USA. But in the periphery where money can't be printed and still hold value inflation will rage. In the core, food will go up in price nominally but deflation will be the overall trend as debt financing of assets unwinds. Unfortunately, deflation will not show up in any day to day consumables in assets; it will show up in commodities, real property, the price of going concerns. This will be possible while money flees the unstable periphery to the relative safety of the core. In the periphery, the opposite will apply.
Foreign exchange will disappear in many countries (watch Egypt now). Countries in this position that import their food supplies (Egypt and soon Greece and later many others including India) will face starvation in their periphery populations. Countries such as these have their own peripheries and cores and as food becomes a scarce resource it will be their peripheries that will suffer first and most. But this will spread. In these countries as starvation or the threat of starvation makes its way to their cores the social upheaval and instability will be uncontrollable. Arab spring was a bottled up awakening but it is just a precursor to what will happen in some areas as awareness of food security becomes a primary concern. We will see affected nation states falling into flux and chaos with great loss of life on scales we are not used to. Availability of food and fuel as measured by marginal costs in relationship to the buying power of periphery populations will be the marker by which we can watch this.
Regardless of the debt levels of core countries, especially the USA, the coming instability of the periphery will start a reinforcing virtuous (vicious?) circle. Money fleeing the periphery will have nowhere to go except the core. Smart money will park money in the core waiting for the eventual bottom of the periphery. This will allow, in at least the USA's case, the continuing financing of deficits at low interest rates. Deflation will continue as long as these dynamics stay in place. Inflation will eventually have its day in the core countries but not till the dust settles.
It will be deflation in the petrodollar core world, i.e. the USA. But in the periphery where money can't be printed and still hold value inflation will rage. In the core, food will go up in price nominally but deflation will be the overall trend as debt financing of assets unwinds. Unfortunately, deflation will not show up in any day to day consumables in assets; it will show up in commodities, real property, the price of going concerns. This will be possible while money flees the unstable periphery to the relative safety of the core. In the periphery, the opposite will apply.
Foreign exchange will disappear in many countries (watch Egypt now). Countries in this position that import their food supplies (Egypt and soon Greece and later many others including India) will face starvation in their periphery populations. Countries such as these have their own peripheries and cores and as food becomes a scarce resource it will be their peripheries that will suffer first and most. But this will spread. In these countries as starvation or the threat of starvation makes its way to their cores the social upheaval and instability will be uncontrollable. Arab spring was a bottled up awakening but it is just a precursor to what will happen in some areas as awareness of food security becomes a primary concern. We will see affected nation states falling into flux and chaos with great loss of life on scales we are not used to. Availability of food and fuel as measured by marginal costs in relationship to the buying power of periphery populations will be the marker by which we can watch this.
Regardless of the debt levels of core countries, especially the USA, the coming instability of the periphery will start a reinforcing virtuous (vicious?) circle. Money fleeing the periphery will have nowhere to go except the core. Smart money will park money in the core waiting for the eventual bottom of the periphery. This will allow, in at least the USA's case, the continuing financing of deficits at low interest rates. Deflation will continue as long as these dynamics stay in place. Inflation will eventually have its day in the core countries but not till the dust settles.