Yardeni and Yourdon say deflation but if goods and services are in short supply, in my book, that's a receipe for inflation. Others say inflation. What is it going to be and when?

-- John (jkiltz@ccgvp.com), July 21, 1998

Answers

Assuming that there is no electricity, then no distribution of goods, it would be inflation....it's always supply in demand. When the market is flooded with durable goods...it's always supply and demand that determines the cost, it would be deflation. Very simple. However, I would certainly stock up on those durable goods that will become a supply in demand commodity. Candles, oil lamps, cooking fuel for camp stoves, food, water, booze, cigarettes, vegetable seeds, the list is enormous....think barter! Not everyone is going to have cash, remember we are just about a cashless society. You have to think in terms that the majority of the population will not be prepared to meet any kind of disaster. Just ask yourself how many people do you know, and how many people have you told to be prepared? They look at you with those big eyes and say "you need to see a shrink." With Americans being in debt, how many people do you know that will be walking around with cash, gold and silver. Those 3 items will come in handy when things get back to normal, that is if our monetary system stays intact. But you can't eat cash, silver and gold. You can't use what you don't have. Supply in demand! (Better get those supplys).

-- Barb-Douglas (bardou@yahoo.com), July 22, 1998.

Assuming that there is no electricity, then no distribution of goods, it would be inflation....it's always supply in demand. When the market is flooded with durable goods...it's always supply and demand that determines the cost, it would be deflation. Very simple. However, I would certainly stock up on those durable goods that will become a supply in demand commodity. Candles, oil lamps, cooking fuel for camp stoves, food, water, booze, cigarettes, vegetable seeds, the list is enormous....think barter! Not everyone is going to have cash, remember we are just about a cashless society. You have to think in terms that the majority of the population will not be prepared to meet any kind of disaster. Just ask yourself how many people do you know, and how many people have you told to be prepared? They look at you with those big eyes and say "you need to see a shrink." With Americans being in debt, how many people do you know that will be walking around with cash, gold and silver. Those 3 items will come in handy when things get back to normal, that is if our monetary system stays intact. But you can't eat cash, silver and gold. You can't use what you don't have. Supply in demand! (Better get those supplys).

-- Barb-Douglas (bardou@yahoo.com), July 22, 1998.

Good question. Like Barb-Douglas points out, shortages of goods would push the prices up -- but if it's true that 85% of our money supply is electronic (can anyone confirm this figure?), you have much less money chasing those goods, which would push prices down.

When? Deflation is already under way, according to some economists. The Asian economic crisis is tanking their currencies, which let those countries sell us their stuff for fewer dollars. It may get noticeable before the end of 1998. But Y2K could break either way.

-- Larry Kollar (lekollar@nyx.net), July 22, 1998.

How long would it take to deplete a store, say Walmart, and a major grocery store if TSHTF. How long would it take to restock it? There would still be a run on the banks but only a certain amount of money would be allowed to be taken out. Japan may be selling us cheaper cars and electronics, but these are not the items people will be purchasing when everything is going down hill. Don't we deport a lot of food like wheat, rice, corn, etc? No fuel, no farming, no deporting. Supply in demand. Electronics will go really cheap, but who will need them?

-- Barb-Douglas (bardou@yahoo.com), July 22, 1998.

Remember these key facts: We only have something like a 35-45 day supply of food nationwide. Most Americans have less than one paycheck in savings at any given time. Few members of the "me" generation or the X-Generation have ever gone beyond their Nintendos or their CRT's to really find out what is involved with "roughing" it, OR ever having to use survival skills. Be concerned. I agree with the post voting for deflation. When there is no money chasing too much inventory, that's all you'll ever see.

-- John Galt (jgaltfla@hotmail.com), July 22, 1998.

Either scenerio could occur depending upon "how the cookie crumbles". If (very likely we will) we (USA)keep passing around billions to supposedly bail out other bankrupt countries, and the EURODOLLAR - now backed 15% with gold holdings - is trading (it is supposed to start being used in 99)and other countries see our tax receipts implode after a market crash (no more capital gains taxes paid and possible losses reducing paid)and the IRS computers don't work --- there could be a run on the dollar and it could lose its' international purchasing power. In this scenerio prices of goods (imported - like oil) could skyrocket as would interest rates as the FED tried to keep it from being devalued. If things continue on their present course and things stay somewhat "glued together" we could see continued deflation as other countries flood us with the goods they need to sell and can't purchase at home. Either could occur - rather than flipping a coin as to which it will be, do a little of several -- 10 - 15% of assets in gold, some in short term bonds or cd's,some in cash, and some in hard goods (foodstuffs, necessities and goods that would be good for barter.

-- Rick Evans (vrevans@bigfoot.com), July 23, 1998.

Does anyone know what the inventory is nationwide of consumable goods? If it takes 3 days to deplete a supermarket, how long would it take to restock every supermarket that is depleted? If WalMart is the only store that supports a population of 40,000, and 2 supermarkets supporting 40,000 people, I say in my area it would take just 2 days. I'm already seeing low inventory on many items, some of the shelves sold out on stuff like charcoal fluid, camp stove fuel, butane, etc. They keep saying next week they'll restock.

-- Barb-Douglas (bardou@yahoo.com), July 23, 1998.

The low supply of charcoal and butane is probably due to high demand in the summer. That would be my guess anyway. Has anyone else noticed shortages?

-- Dave (dave22@concentric.net), July 23, 1998.

Price inflation is caused by the supply of money increasing faster than the supply of good and services available for sale. In the long run if the money supply (M2 or M3) is growing 6% per year and the supply of goods and services is growing 3% per year, the inflation rate will be about 3%.

Y2K will disrupt the supply of goods and services for a few days or a few weeks or a few months. Your choice. I vote on a few months based on how little Y2K work has been done so far. This portion of the equation is inflationary.

I don't know what will happen to the supply of money. It seems that US banks are doing a lot of Y2K remediation and are more likely to be done than most other industries. But what will the Fed do? The Fed allowed the money supply to fall by one- third in the 1930's -- that was deflationary. A money supply decline could happen again. That could easily offset the inflationary effect of goods and services supply disruptions.

The correct answer is we don't know whether Y2K will be inflationary or deflationary. My best guess is inflationary in the second half of 1999 and deflationary in the first half of 2000.

-- Richard Greene (rgreene2@ford.com), July 28, 1998.

When I was in school they used to preach than recessions were "inventory recessions" used to liquidate inventories and depressions were the time when debts or "excess debts" were liquidated. I never really believed it, but I wonder if the 10 year expansion can be partly attributed to the introduction of just in time inventory in the U.S. Has this just in time delayed or prevented our usual recession? I wonder if the just in time have contributed to the semblance of permanent prosperity which Japan enjoyed for decades until the advent of their current depression in 1989.

More ominously, could the Just in time reduce recessions enough that that when the economy does turn down, it goes to the debt liquidating depression? The figures that I have seen from the 30's seem to indicate that the depression would have continued until enough debt was liquidated that people would again spend money.

I am sure those gurus are predicting deflation because of a glut of production capacity for manufactured items with too few consumers who have money to buy the products. No doubt about it, that is deflation and we see it every time products lower their prices with labels like "20% more free".

And it is true that during the depression the government reduced the amount of currency because they ill advisedly paid of debt instruments incurred during WWI and upon which the money was backed. However, maybe the guru's could tell us how far into the depression the government did this. Because it is also true that in the beginning, even under Hoover, the government added a lot of money to the supply.

Maybe if times get bad, we will have simultaneus inflation in things that people really need versus a decline in price for things that we can live without. We may be seeing that already with the run on grocery canned goods and price increases.

If the gurus are calling for deflation with the entire money supply remaining intact - including a trillion dollars overseas, money generated from a market meltdown - then I must conclude that deflation is also likely if part of the banking system is locked up and a significant fraction of the money supply is locked with it.

But if necessary items are in short supply, we can be assured that the prices of those things will likely rise.

-- Danny (dlefever@emeraldis.com), July 28, 1998.

I have been following this new site. They posted a new article on iminent indictments against White House aides and Hillary. Got some great forecasts & articles. Supposed to cover Year 2000 Bug problems, investments & stuff. His article on an upcoming market drop and recession makes sense. The site is http://www.geocities.com/hotsprings/villa/3388 .

-- Lisa Hall (ucf@earthlink.net), September 17, 1998.