Are we facing deflation in the future?

unify the currency globally, make it all electronic and implant chips into people to use for transactions. oh and nationalize all resources.

or invade iran and take their oil and sell it to the world. them dubaians getting uppity!

I can see alot of solutions to this mess but all of them just kinda suck. we're in a little pickle economically but cheer up. the market is what the market is

I think I mentioned something along these lines... http://www.ma​rketguru.com/op​inions/trouble-​ahead/1002,1148

I don't know much about Macro economics but found this illuminating - thanks Arawak.

I'm going to be interested in seeing IOU USA. I wonder if it's going to try to tell the truth. This could be a great turning point! The True role of the fed has been obsured by lack of teaching history accurately (only independent scholars seem to be able to put the information of the formation of our currency system in any comprehensible form) and it's only been maverick politicians in the past that have fought the consolidation of all into the pockets of central banks.

As one treasury man said: "If we can borrow from the fed at interest to create money, if we can issue bonds at interest, then surely we can borrow on the good faith of the USA (which is all the fed loans us money on) to issue debt free money as would be borrowing from our own abilities and productivity as a nation rather than from a private concern called the Federal Reserve Bank, incorporated.

The only reason we pay income tax and what all of our taxes go to is the interest on the money that the fed creates and loans us to use as currency. It's reached the point of implosion, and I'm willing to bet that the Central Bank Screwed Up. They thought they were going to be able to replay the S&L Scandal, buying properties for pennies on the dollar and selling at inflated prices. But the fed pushed too hard, lowering interest rates and fueling a credit bubble to sustain the great god of GROWTH (what would be wrong with a year or two of flat economic performance compared to the black financial hole that the fed system has delivered to us) and created an implosion of housing prices.

Now the banks (read about money changers) are stuck with DEFLATED assets, and can't even sell those. They can't loan money because for every asset decline a tenfold limit is imposed on allowable loans out, requiring banks to "call" loans, demanding payment, or raise capital. Sound familiar?

This is actually good for us as people and citizens. It is severe enough for concerned wealthy (They're not all money changers) to fight for a reform of our currency, and isn't going to hurt those who are educated to dangers of fractional reserve banking.

Gold standard is not an answer. There's no gold in curculation and no inventory has been done in decades of the amount of gold in fort knox. Gold is way too rare and cornerable to base a currency. Better silver, or better yet, let the government TRULY print its own dollars, free of crippling Federal Reserve, incorporated, backed by the good faith, and productivity of the US of A. Demand the lowering of tarrifs (I sell internationally trust eme I know what I'm talking about) THAT OTHER NATIONS CHARGE AGAINST OUT EXPORTS IT WON"T HURT US! WE HAVE EVERYTNING WE REALLY NEED RIGHT HERE AT HOME!

You can't blame the people who bought houses, They didn't know they were being fleeced.

Not only can't you blame the people for buying houses.. I'd like to expand on that... you can't blame them for investing in the market either.
Our founding fathers imagined the market very differently. The fact is that only 1% of people trade short and an even smaller percentage play options and futures.
What was once a mere tool for exporters to insure their proceeds is now traded on heavier volumes than the equity market itself.
And why is that? - because they trade on margins!
Common sense says that if you have $1,000 to invest in a company your money grows with the companies' good performence. But now there is a new fad - when trading options, futures or Forex you only need a fraction of those dollars to take a position and make the same gains. All theese instruments infalate the market out of control. Every darn wall street investment house or bank trades on margins, raking it in when times are good with 10 times the profits that should have been gained.
And when times are bad?
Simple. Our tax dollars bail them out.
Who paid for bear sterns irresponsible stealing?
We did. Did anyone demand they pay back the dividends and million dollar salaries the took for decades?
The game got out of hand. Governments greed and preference of the rich over the people has made it common practice to be irresponsible, and why not? only upside in this game.
We are all so quick to call ourselves a free nation but this country is run just like the darkest dictatorship.
In a dictatorship, if there is war, enlist the peasants.
If the king wants more money - raid the villagers and take all they own.
What's the difference really? At least dictators are honest about who the country is for..
And how many of these bankers have gone to jail? maybe three...
Justice indeed.

That's also why it's not a good idea to have the fed (Federal Reserve, Incorproated), a privately owned bank (that's right it has nothing to do with the government except having the financial clout to push laws and resolutions and bills to allow it to loan money it never had to the US Government. It's a PRIVATELY OWNED FOR PROFIT BANK) buying up all the bad loans and ending up with ownership of such large numbers of properties when it has such control, unbridled by regulation, of our entire economic fate: That can create markets by manipulating interest rates..

So my question is.. where do you invest during deflation? Or don't you? I don't think deflation is going to bring about a lower CPI so it's not like cash is particularly helpful. Commodities will slump as will the market as a whole for that matter.

There are only three ways I know to play a deflationary period:

1. Pull all your money out of the financial realm and sit on it (literally) with the paperwork proving it is yours.

2. Short the markets (puying puts, selling calls, inverse index funds).

3. International bonds in countries that still have inflation, IOW, get your funds out of the country.

The only way I see inflation continuing is if the middle class were given a 5% pay raise for the next 3-5 years.

Here's what i think the Fed will try. They're going to try to allow banks to loan on zero or negative reserves. They'll sponsor a bill i bet soon. That will be when the fight will start in congress. I have a hunch...

It's the only way banks can avoid responsibility and evade a change from central banking economics.

This would create oceans of available cash which would drive inflation through thhe roof. That's the inflationary scenario. I can't imagine a deflationary scenario, short of interest rate hikes by the fed, and i don't think you'll see that any time this year.

This is all very interesting, and while I gree to the point of being bearish on the market for 2-3 years, I am unconvinced that deflation is headed our way.

Also I am not sure I understand why deflation would be bad?

DowJones - That would be utterly insane. It would be like giving someone heroin to get over their cigarette addiction. Banks could essentially print cash. I wouldn't doubt that the reserve ratios are changed, however. *sigh* that will only keep the party going for so long.

hoofnagle - any big change in money supply is disruptive to the financial equilibrium. In the case of deflation, debts become more liable to default as less overall capital means it is harder to get the dollars to pay back loans made when they were more plentiful. We don't want deflation. I think the overall ideal situation is mild, ongoing inflation.

Ha it's already imnsane with 50 to one leverage FNM anf FRE. Might as well be zero.

I know.. the capital markets and economy overall really is just one big experiment.