Another Sign of Global Deflation

[Senator]

The Bank of Japan surprised markets on Friday by pushing interest rates into negative territory for the first time ever. By doing so, the BOJ is essentially charging banks for parking excess funds.

Bank of Japan's negative rates are 'economic kamikaze': Boockvar

Another reason for the Fed to raise rates. If we raise rates a few more times, maybe we can have the strongest currency the world has ever seen, and the most expensive exports the world has ever produced. Perhaps companies can ship jobs overseas ever faster to generate more profits. [/sarc]

It's amazing how the Fed thinks the USA is in a vacuum... Plan on a low return environment for years to come unless we can get out of this deflation funk.

 

[MichaelB]

Yes, we accuse the Fed of creating this mess and now we demand the Fed clean it up -- but not just yet. Brings to mind the words of St. Augustine of Hippo

Da mihi castitatem et continentiam, sed noli modo

translated,

Give me chasity and continence, but not just yet

 

[Mulligan]

About 2 years ago, it became readily apparent to me the world was in a "deflationary" mode. Low growth and addiction to low interest rates made my decision to buy higher yielding, but safe preferred stocks a no brainer for income. I won't be luckily enough a second time to know when the worm will turn. But certainly doesn't appear to be on the immediate horizon though.


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[marko]

Bank of Japan's negative rates are 'economic kamikaze': Boockvar

Another reason for the Fed to raise rates. If we raise rates a few more times, maybe we can have the strongest currency the world has ever seen,

Wouldn't that be the time to buy my dream home in Aix en Provence?

 

[Gone4Good]

Wouldn't that be the time to buy my dream home in Aix en Provence?

+1

Now if they'd just let me stay more than 180 days per year.

 

[NYEXPAT]

It is a boon for some of us expats. I just started SS last month and the 35k of two years ago is worth 47k today. Analysts are projecting another 7% increase before we are all said and done.

 

[ESRwannabe]

I think it will be stagnation more so than deflation, at least in the US.

I think the US will go through what Japan had endured the last few decades.

 

[NW-Bound]

Whoa! And the ECB is already having negative interest rate for a while. Will the ECB go even deeper in the negative zone, and increase their QE? They are already buying government bonds at a rate of EUR 60B per month.

Wouldn't that be the time to buy my dream home in Aix en Provence?

Time to refresh your conversational French.

 

[marko]

+1

Now if they'd just let me stay more than 180 days per year.

Pretty sure all you have to do is leave the country for a few days and return. Italy is just a short drive away and the food is good!

 

[Options]

On a personal level, deflation has been reflected in goods (i.e., clothing, furniture, electronics, junk from Walmart, Amazon, etc.), but certainly not in most services (i.e., healthcare, education).

 

[daylatedollarshort]

It is an interesting world economy right now. Technological deflation is making many jobs obsolete, while one of our kids has been interviewing for tech jobs and is getting told the hours are 50 - 80 a week at some places. I guess asking if you would work 80 hours sounds a bit better than do you mind working for half price. So some workers are being replaced or making less because of disruptive technologies (Uber vs taxis drivers) and others being overworked due to a shortage of workers in the companies doing the disruption.

A world without work, or at least living wage work, is going to require new types of taxes, economic policy and social programs:

A World Without Work - The Atlantic

"What may be looming is something different: an era of technological unemployment, in which computer scientists and software engineers essentially invent us out of work, and the total number of jobs declines steadily and permanently."

 

[marko]

Time to refresh your conversational French.

Lived in Paris for 9 years. Visited for over 30 years. Pas de probleme!

 

[Gone4Good]

Pretty sure all you have to do is leave the country for a few days and return. Italy is just a short drive away and the food is good!

Sadly it no longer works that way.

 

[Fedup]

Europe is so expensive, I don't intend to stay more than 60 days.


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[Gone4Good]

Europe is so expensive, I don't intend to stay more than 60 days.

Costs in Europe vary widely. We found Greece and Spain to be quite inexpensive. Even France is cheaper to travel through than the U.S. The U.K. and especially Switzerland, meanwhile, are quite expensive by U.S. standards.

 

[tulak]

Costs in Europe vary widely. We found Greece and Spain to be quite inexpensive. Even France is cheaper to travel through than the U.S. The U.K. and especially Switzerland, meanwhile, are quite expensive by U.S. standards.

This is the same as saying the US is expensive. If you live in NY or the Bay Area, then sure. But as there are lower COL locations in the US, the same is true for Europe. The real problem isn't cost, but integrating into a different culture.

I'm fortunate since I have citizenship in an EU country. I expect to spend a good amount of time living in the EU once I retire, but I'll most likely split my time between the US/EU (and possibly SE Asia), since each place offers something different.

 

[NW-Bound]

Lived in Paris for 9 years. Visited for over 30 years. Pas de probleme!

Darn! I guess I am the one who will have to crack the book.

Oh wait! I do not know if I can yet afford a 2nd home in Provence.

 

[Fedup]

Costs in Europe vary widely. We found Greece and Spain to be quite inexpensive. Even France is cheaper to travel through than the U.S. The U.K. and especially Switzerland, meanwhile, are quite expensive by U.S. standards.

I was not looking at those countries. I've been to Paris, but not the whole of France. So far I'm only looking at hotels at several countries and they are not cheap.


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[RAE]

Yes, we accuse the Fed of creating this mess and now we demand the Fed clean it up -- but not just yet.

translated,

The problem is that the FED has boxed themselves into a corner after QE 1,2,3 and ZIRP in response to the 2008 recession, and I don't think they (or anyone else) know how to clean this mess up, as we've never been through anything like this before. Raising interest rates right now was (and is) probably not a good idea, as the US economy is still obviously struggling, although we may be a bit ahead of the rest of the world. I predict that there will be no more interest rate increases in 2016, and if they do increase it again, it won't have the desired effect. 2016 is not going to be a good year to make money in the markets, as things are still overvalued in my opinion, and the weak economy is not going to help turn things around anytime soon.

 

[NW-Bound]

So, perhaps the Bank of Japan's action will cause the US Fed to stop raising rate, and that causes both stock and bond markets to go up today.

I dunno what Monday will bring, but today my stocks go up 2.87%, and my MFs up 2.11%, compared to the S&P at 2.48%.

 

[marko]

I was not looking at those countries. I've been to Paris, but not the whole of France. So far I'm only looking at hotels at several countries and they are not cheap.


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I think the tangental point of this thread was that IF the USD gained a dramatic gain in value and became the most powerful currency, that things in the rest of the world would be cheap to buy with USD

 

[Gone4Good]

I think the tangental point of this thread was that IF the USD gained a dramatic gain in value and became the most powerful currency, that things in the rest of the world would be cheap to buy with USD

That's absolutely been the case. We've been living overseas in different parts of the world for the past two years and everything is basically on sale compared to when we started.

Here in Mexico my USD purchasing power has increased by about 7% in just the month since we arrived.

From a portfolio management perspective, USDs buy more foreign earnings now tool.

 

[MichaelB]

The US$ is already the dominant currency and has gained significantly in value over the past 4 years. As a net importer and also the global reserve currency, it's natural trend is to decline relative to the trade-weighted index. If so, it is probably closer to a peak in value now.
.

 

[Senator]

The US$ is already the dominant currency and has gained significantly in value over the past 4 years. As a net importer and also the global reserve currency, it's natural trend is to decline relative to the trade-weighted index. If so, it is probably closer to a peak in value now.

I agree, but if the Fed has another 3-4 rate increases this year, another 1-2%, we will likely be higher than the highest peak.

I think we are done with rate increases until inflation starts. The Fed had to raise rates to save face, and allow banks to have higher profits.

 

[Mulligan]

The US$ is already the dominant currency and has gained significantly in value over the past 4 years. As a net importer and also the global reserve currency, it's natural trend is to decline relative to the trade-weighted index. If so, it is probably closer to a peak in value now.
.

My how things change. That second peak in early 2000's was when US was running budget surpluses. They had projections showing the US being debt free about now. Also, they were worried about how all US debt being paid off would affect world economies and dollar value. Well, I guess we don't have to worry about that scenario for a while.


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