Ed Yardeni predicts a deflationary recession caused by y2k, others predict the potential for y2k to cause inflation. Personally I don't see anyway we could have anything but inflation. Any educated opinions out there as to which it might be? Thanks.

-- richard livitski (trubeliever@webtv.net), August 18, 1999

Answers

Huge demand on food, wood-stoves, generators, oil lamps, prep/survival goods, etc. will eventually cause shortages or higher prices.

Minimal demand on trinkets, baubles, show clothing, and other nick- nacks (60% of ALL retail businesses) there will be overstocking of these goods and lower to give-away prices.

What will the dollar be worth? Less than it is today, that's for sure.

Judging from the fact that "our" prediction level of crashes and panic that "should have happened by now" has been TOTALLY WRONG (we underestimated the stupidity of the public). There is no tellling how long the bluff will last (could be till October?).

Commodities such as food, solar, genies and IMPORTANT real goods will have a high value. It will be interesting Christmas season...any guesses on if the bluff will last till November?

-- dw (y2k@outhere.com), August 18, 1999.

Those people who are vaguely concerned about Y2K and plan to do some preps (3 days to 2 weeks) will likely put it off until after school starts, then 'til after Thanksgiving, then 'til after Christmas and then they won't have any money... *sigh*

-- Tricia the Canuck (tricia_canuck@hotmail.com), August 18, 1999.

The "standard" economic models seem to lump all goods and services into one GNP. That may be fine for sound bites, but there are winners and loosers. At the moment, many good products are doing well, the truely useless products are doing FANTASTIC! Expensive, overpriced things like houses, boats and cars are also doing well.

There will be a division of value in products. The GNP should be divided into: Real Goods/Services & Useless Trinkets/Services.

-- dw (y2k@outhere.com), August 18, 1999.

If a banking crisis unfolds, I cast my vote for deflation. In the absence of credit cards and checking accounts, cash and barterable items will be currency. The money supply in existence will be basically fixed (at least in the short term) and will buy more goods/dollar because cash will be more valuable. Millionaires on paper will suffer because either their equity has been wiped out or they can't "spend" their illiquid capital.

One exception to the above which might cause inflation is if the Treasury starts printing $1000 notes ($10,000 notes too?) to accomodate a binge of withdrawals. Can you imagine a teller handing you 5 or 50 slips of paper that represents your entire savings?

Would this country ever resort to the use of scrip to "assist" the Treasury presses?

All I know is that the whopping 4% bank interest I'm losing is small price to pay for my piece of mind.

-- ratt (not@your.normaleconomist), August 18, 1999.

One other thing---let me qualify the deflation scenario a little bit...if a loaf of bread costs $20 and other necessities are abnormally high that does not mean inflation to me if I can buy a 200K home for 15K. You have to look at the sum all prices of things to see if things have truly inflated or deflated.

-- ratt (possibly@digging.aholeformyself), August 18, 1999.

How about inflation to infinity, and then paper no longer being accepted in exchange for ANYTHING of value? I conclude that paper "money" will rapidly become valueless to me after the rollover. I will happily trade it away post-1/1/2000 for material items of survival value. I will not ACCEPT any amount of paper in exchange for anything material I choose to trade next year. Once a big chunk of the population starts to think the same way, greenbacks have a few days at most that much of anyone will willingly give up goods for them. (Now, being looted by uniformed types, and being left worthless paper they claim has value - that is always possible, but is just looting, not use of paper as currency).

"Only government can take valuable ink and paper, and turn it into something valueless" - unknown

www.y2ksafeminnesota.com

-- MinnesotaSmith (y2ksafeminnesota@hotmail.com), August 18, 1999.

Well, that kind of depends.

If the digital banking system fails totally, and we go from a six to a ten in two months, obviously there will be a deflation on a monstrous scale. Probably a depopulation as well.

If Y2k is bad, real bad, but the system kind of holds, and the Feds still exist in June of 2000, then you will likely see inflation.

I don't trust paper, but I sure will have a little on hand at rollover.

-- Jim the Window Washer (Rational@man.com), August 18, 1999.

It's a gamble. If you take all your cash and invest in durable goods and nothing happens, you are cashless with durable goods and no where to get rid of it (garage sale?). If you have cash and durable goods for barter and nothing happens, you can always consume the durable goods over a period of time and you still have some cash to save for a rainy day. If you have all cash and very little to barter with, you can always use the cash to purchase items if the cash is worth something. If cash isn't worth anything, then I vote for having goods that will not be available. As for gold, it takes cash to buy gold, and what good is gold if you have no goods? I wouldn't accept gold for my goods as a way for barter. Deflation or inflation, either way, it's always supply in demand. We are a nation of consumers and when the stores are empty, supplies are good as gold.

-- bardou (bardou@baloney.com), August 18, 1999.

4th qtr 1999: I expect to see inflation of necessities and basic commodities. Oil - Up; clothes - Up; food - Up. Non-essentials: Tourism - down; TVs, VCRs, CDs, entertainment - flat to down. I would not be surprised to see discounts for cash especuially at gas stations and restaurants.

1st qtr 2000: Consumer confidence down, so credit demand down, interest rates down assuming you could find a ready lender. Basics oil, food essentials continued UP. New cars sales and new home sales OFF/Down substantially. Unemployment - UP. Perhaps several weeks of difficulty in making a market for traded stocks and commodities. Not a time to be a seller or a buyer of stocks or tangible assets like gold, silver or real estate.

2nd qtr 2000: If markets are working and supply functioning there may be opportunity for investment - buying low to sell high later. Stock values and property values may be much lower in 9 months.

Some areas to watch:

1. China: If China devalues further could plunge global economy into deflation as prices fall across the board trying to compete with low price producer, China.

2. Japan, SE Asia, Latin America defaults or liquidity problems. Financial weakness may show overseas before spreading to the USA, UK & Canada.

3. Commodity prices: Gold and oil. The market reflects changes in monetary policy. Oil my lead followed by gold. The stock market may move per the opposite trend of gold. Fundamentals favoring gold frequently do not favor stocks.

In addition to nonperishables, some gold and some cash seem to be prudent preparations. Both may exhibit increased value over next 12 months.

-- Bill P (porterwn@one.net), August 18, 1999.

In the final analysis inflation or deflation will be determined by the interaction between the Federal Reserve and the financial markets, not by the direct effects of Y2K. (For those who think that Y2K represents the end of banking and the beginning of a barter economy, this sort of analysis is irrelevant. I happen to think that Y2K is nowhere near that kind of an animal.)

My reading of the economic tea leaves is very hazy on this, but if you held a gun to my head and made me commit to one side or the other, I'd pick deflation.

As things now stand, there are major deflationary pressures in the global economy caused by oversupply and overcapacity in most industrial products. Demand is still weak in Asia, and weakening in Latin America. Almost the only spectacularly inflationary trend in the world right now is in the equity (stock) markets, where prices go up and up. If the US stock market bubble bursts, the last dike against worldwide deflation will have burst.

The Fed could move very quickly to reflate, but the tools at their disposal would not be strong enough to combat the determined resistance of the global capital markets. I think the bond market is likely to be more pleased with deflation than not. They will punish the Fed and punish the dollar, if the Fed moves to reliquify too strongly. I don't think the Fed could monetize debt quickly enough to reflate the dollar if stocks really tank. We'd move into a period of maybe 3% to 5% annual deflation for a couple of years until the politics of reflation take hold.

Of course, I can't say I have seen the future. I'm only guessing. But this is my best guess.

-- Brian McLaughlin (brianm@ims.com), August 18, 1999.

Well, if TSHTF, I would predict deflation. I believe that I heard that prices are decreasing worldwide, and a depression scenario would accentuate this downward pressure. This would be bad for anyone owing a sizable chunk on their mortgage.

HOWEVER

The US of A currently carries a debt load in the TRILLIONS of dollars, and, if history is any indicator, our government may well try to inflate it's way out of this debt. This would be good for anyone owing a sizable debt on their mortgage, if their income could keep up.

Bear in mind that I am not an economist, and know shit about economics, other than how to pay my bills.

Caveat Emptor, this opinion is worth what you paid for it.

-- Uncle Deedah (unkeed@yahoo.com), August 18, 1999.

It all depends on how the Fed reacts. If there is enough pressure, they may rapidly increase the money supply, which would lead to hyperinflation. If they don't, and other factors constrict the money supply, deflation would be likely...and Al Greenspan isn't telling.

-- Mad Monk (madmonk@hawaiian.net), August 18, 1999.

Al won't even be around.

-- Porky (Porky@in.cellblockD), August 19, 1999.

While it may be true that banking and bartering may be irrelevant, the fact still remains that if there's a problem in manufacturing and shipping goods to America due to Y2K, then we have, in my opinion will be entering into a inflationary economy. There may be a deflation in real estate, but we no longer manufacturer durable goods in this country and we depend on imports to keep us living a good life. I may be wrong, but I think the high-tech computer and software industry is what is keeping the stock market going. Inflated it is, but I believe that the bubble is about to burst and there's going to be a lot of pissed-off people. Keep your eyes open during the month of September, I believe we will see where the trend will be heading.

-- bardou (bardou@baloney.com), August 19, 1999.

richard,

Perhaps you might convey something about why you expect inflation and nothing but inflation.

Jerry

-- Jerry B (skeptic76@erols.com), August 19, 1999.

Both deflation and inflation suggest a gradual movement, as in a balloon. There will be nothing gradual about it *pop*

-- CygnusXI (noburnt@toast.net), August 19, 1999.

To Jerry, The reason I feel that there will be nothing but inflation is due to imbalances not only in preparedness but in importing/exporting. In the US we are much farther along in our preparedness compared to the countries we import from. Since we import soooo much more than we export and have gotten used to inexpensive (due alot to the Asian economic problem) foriegn goods, if minor glitches happen to us but major ones to Asian markets, demand will still be here for us but products from overseas will suddenly be cut-off. Thus we get cut-off from one of the very things that has helped generate such a surge in our economy, cheap,foriegn goods. Thanks to all who responded to this question, I continue to welcome your answers to my question.

-- richard livitski (trubeliever@webtv.net), August 19, 1999.

If 95% of our "money" disappears in one fell swoop as the computers fail, how can we not have deflation? According to Gary North, the Crane Corporation, the company that produces all of the paper that our money is printed on, can't ramp up production to make more paper. Scrip on inferior paper won't have the same value, in the public's mind, that our current money has. Somehow I can't picture what would happen if the feds printed lots of $10,000 bills. Got change?

-- Pearlie Sweetcake (storestuff@home.now), August 19, 1999.

richard,

Thanks for your reply. I concur that available data suggest more direct Y2K problems external to the USA than internal. However, coupled with internal Y2K problems in the USA, I would expect the international problems to contribute to such a disruption of the US economy that credit based "demand" would shrink enough to qualify for the "deflation" label.

We shall see.

Jerry

-- Jerry B (skeptic76@erols.com), August 19, 1999.