Inflation or deflation?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Any help appreciated here...if things break down enough come 1/1/99, will we experience inflation or deflation? What are the conditions for either to take place? Short/long term scenarios? Thank you for your help. L.
-- lemming (firstname.lastname@example.org), June 18, 1999
In 1/1/99 there will be a sharp run up in the stock market and inflation will still be in check. By 4/1/99 there will be some profit warnings from everyday companies which will create a pullback in some industry sectors. This starts to burst the internet commerse bubble which to date has not created any profit for any company except yahoo!. Someone will write an article called Amazon.bomb which deflates most of the intenet bubble by June. In the early part of June 99, many sector companies have had stock pull backs as much as 30%. Pharmaceutical and technical stocks were two of the sectors.
To answer your question, Inflation post 1/1/99 up until June 18, 1999 is still running at a low of about 2.5-3% per year. The bull market continues and gold remains at a 30 year low. Ther will be no interest rate hike from the Federal Reserve for another 2 months.
July-Dec 1999 are expected to be the same by a majority of people. Some are calling for a volitile stock market with stocks going no where, but not loosing serious ground eigther. Many people who are going to pull all of their money(Prior to 2000) out of the banks and stock market on average have less 5000 in savings each and thus that will have a very small inpact on the economy as a whole.
Post 2000 there may be a down turn in transportation of goods flowing into the US market from overseas due to potential computer glitches. This may start to reverse the huge 189 billion US trade deficit with the rest of the world due to the lack of preparations in those sectors of the world. Much of problems with computers in the other countries will be due to the use of pirated software in those locations. US fuel costs may go up if the computer glitches hit that sector very hard. To date, there has been no call for the use of the US national oil reserves which were set up after the 1974 oil embargo. If fuel prices go up this may restart the pumping of oil from the Southern states oil fields which were shut down due to the very low oil prices between 1997-June 1999.
There are no solid basis for anything predicted Post June 18, 1999. We will have to see how things turn out.
As for the prospects in 2000, no one knows for sure, however in the US, Canada, preparations are continuing for the fight against the y2k bug. The vast majority of people think that electrical power supply problems could effect portions of the the US for several days to a few weeks in Jan 2000. Transportation of critical food items should contunue without any govt. interfearance but people should be prepared for the change over with atleast a few week of food supplies just incase if a winter storm hits the Northern States.
-- Ned P Zimmer (email@example.com), June 18, 1999.
Thank you Ned, I am comforted by your BITR scenario :)
-- Andy (2000EOD@prodigy.net), June 18, 1999.
Who is this Ned fellow? Mr. Zimmer....are you a *farmer* from Montana too?
-- Will continue (firstname.lastname@example.org), June 18, 1999.
On the main page go to Older Messages and click on Banking/Finance, wait quite a while then search for BANK and then GOLD. This topic has been posted on extensively.
Even if you can predict what will happen with the computers and utilities in 1/1/00 and beyond, you still have to factor in human actions and reactions which are wildly variable. Will Japan pull it's deposits in American banks on 12/7/99, etc. etc. etc.?
If you plan for inflation and deflation, you stand a better chance. :)
Please note that many of the posters do NOT understand that price changes of a given service or product are neither monetary inflation nor deflation. True inflation or deflation concerns the value of units of monetary exchange in terms of ability to purchase ALL goods and services. When the price of something goes up or down, and the prices of everything else either stays the same or goes in the opposite direction, that is merely a shift in demand/supply and has nothing to do with inflation or deflation of the value of the medium of exchange.
-- Ken Seger (email@example.com), June 18, 1999.
IMHO, the greatest risk of deflation in the USA is the possibility of a stock market crash. This would erase many trillions of dollars of assets very quickly, and trigger a fairly sharp contraction in the productive economy. This risk exists over and above any Y2K risk.
IMHO, the greatest risk of hyperinflation in the USA is the possibility that the Japanese banks might dump their US Treasury bonds into the bond market, in order to raise cash to meet obligations to their depositors. This would raise interest rates sharply. The inflation risk in that scenario would be that the Federal Reserve might try to drive rates back down by buying the bonds on the open market. Such an action could balloon the money supply very quickly. This risk exists over and above any Y2K risk.
Adding Y2K to these current risks complicates the picture somewhat.
Again, this is only my opinion, but I believe that if Y2K does *not* affect production in the USA, or if Y2K affects production in the USA only modestly (leading to no more than a 1% drop in GDP), then the *direct* effects of Y2K on inflation or deflation will be slight.
If Y2K has pronounced effects on the USA's GDP, leading to a contraction in production greater than 1%, then I think its *direct* effects would become progressively more deflationary, depending on how badly the GDP dropped.
Exceptions to this deflationary rule could occur in cases where a product or service is both indispensible *and* Y2K had eliminated a substantial portion of the global capacity to produce it. Gasoline might be a good example of a product that gets more expensive. Land and houses would be good examples of things that would deflate. If food were scarce, it would become *relatively* more expensive, no matter whether the climate were inflationary or deflationary.
Next, you need to understand that no action in the economy is without a reaction. The Federal Reserve Board has the power to react to any deflation in a way that tends to counteract it. Such actions by the Fed would not be direct effects of Y2K, but they would affect whether the eventual outcome were deflation or inflation.
The big wildcard in Y2K (to my mind) is how it might *trigger* those other risks, like a stock market crash, or Japan dumping its bonds. These are systemic risks, and even if Y2K proved a bump in the road, they would continue to hang over the world economy. *Any* sufficiently disruptive event could cause these systemic risks to move from the potential to the real.
Overall, I see more ways for deflation to occur in 2000 than increased inflation, but hedging your bets is a pretty decent idea in any event.
-- Brian McLaughlin (firstname.lastname@example.org), June 18, 1999.
Ned, you scratch the surface of different y2k matters, and your overall analysis sounds a bit simplistic.
Just to pick one point you mention, I don't agree that cash withdrawal is not important because, "after all, people that will withdraw ALL their money only have $5000 or less".
(a) If this group of people ( the "withdraw-all" types) sum up into the millions (which they should, because most people don't have more than $5000 in the bank), then you've got a hell of a big problem in your hands.
(b) And what about the second group, the ones that won't withdraw all of their money? Why wouldn't they withdraw far more than $5000? Say, someone with a half-million net worth might decide to withdraw $100.000, buy guns and ammunition, and keep it hidden somewhere.
The fact (?) that there are people that will not withdraw "all of their money" doesn't mean that they can't have thousands and thousands of dollars somewhere in the banking system.
-- George (email@example.com), June 18, 1999.
Your response indicates that you have an educated clue about how uncertain the next 6 months are likely to be. It is this uncertainty that will be the primary source of problems for the financial sector (assuming that most have already remediated successfully).
My best "educated" guess is that the stock market crashes when everyone realizes they feel uncomfortable with the uncertainty. The Fed responds by reflating through bond purchases.
Unfortunately, I also expect Y2K to have a meaningful impact on the economy's ability to produce. Most businesses will face instant depreciation of assets which will reduce their productivity. It's kind of like an oil shock. When the Fed's reflation meets a productivity hit, the end result is most likely stagflation.
For this reason, I'm thinking gold is the way to go, and I've got mine already.
I'll admit to being a "b". There's no way I'm losing everything the way my grandparents and their families did back in 1929. I'm hedging all the way to the bank and back again. I have my own family to look after now.
-- nothere nothere (firstname.lastname@example.org), June 18, 1999.
Thank you all for taking the time to respond. I'll check the archives as well. Peace. L.
-- lemming (email@example.com), June 18, 1999.
Do you have any quarrel with Ned's first couple of paragraphs about the first six months after the 1/1/99 breakdown? :-)
-- No Spam Please (firstname.lastname@example.org), June 18, 1999.
Do you mean this No Spam?
"In 1/1/99 there will be a sharp run up in the stock market and inflation will still be in check. By 4/1/99 there will be some profit warnings from everyday companies which will create a pullback in some industry sectors. This starts to burst the internet commerse bubble which to date has not created any profit for any company except yahoo!. Someone will write an article called Amazon.bomb which deflates most of the intenet bubble by June. In the early part of June 99, many sector companies have had stock pull backs as much as 30%. Pharmaceutical and technical stocks were two of the sectors. To answer your question, Inflation post 1/1/99 up until June 18, 1999 is still running at a low of about 2.5-3% per year. The bull market continues and gold remains at a 30 year low. Ther will be no interest rate hike from the Federal Reserve for another 2 months."
I'm more interested in the first 6 months of 2000 :)
-- Andy (2000EOD@prodigy.net), June 19, 1999.