Are we heading into deleveraging?

Are we heading into deleveraging?

  • Yes, there will be deleveraging and deflation

    Votes: 16 76.2%

  • No, there won't be deleveraging

    Votes: 5 23.8%
  • Total voters
    21
willrocks

willrocks

Well-Known Member
Silver Stacker
Over the next two years, I'm expecting some level of debt deleveraging and deflation to hit ALL financial assets. IMO this will happen before any inflation returns.

This will mean even safe-haven assets like real estate, gold, silver, and crypto will go down in value.

What's your opinion?
 
Who are these indebted assets going to be sold too? We’re in the middle of a balance sheet recession which is characterised by households and businesses paying down debt in preference to borrowing to buy assets.

I’ve voted for no deleveraging or deflation. Sure , there’ll be asset sales, we’ve already seen plenty but it may not be on the level you expect.

Edit to add: or if prices do fall nominally, the real value of those assets may not be affected too much.
 
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Quite a few pundits are saying gold (and hence silver) will be spared in this. Harry Dent, and a whole bunch of market articles are calling it.
 
I was on the fence for quite a while, but despite the money printing I am calling deflation and deleveraging. I see the CBs and Govs printing money and giving it to the ones in debt, even buying their junk assets to get them out of trouble. It's bailout by stealth but it should result in deleveraging of those recalcitrant players who became over-indebted.
 
“Who are these indebted assets going to be sold to? “

The highest bidder !

I note that transport,earthmoving and civil business are already showing signs of deleveraging , asset prices seem to be falling. I believe other assets will follow.
 
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Inflation in the US, deflation for the ROW. It's still very much a US dollar world, and not much seems to be able to challenge it. The EU eurocrats are fighting each other like ferrets in a bag, the Yuan is still not ready for significant international role, and many of other "major" central banks (incl. Australia, Brazil, Canada, Denmark, England, ECB, Indonesia, Japan, Korea, Mexico, New Zealand, Norway, Singapore, Sweden, Switzerland) are going to toe the USA terms of trade for USD swap lines until further notice.
 
dollars said:
I note that transport,earthmoving and civil business are already showing signs of deleveraging , asset prices seem to be falling. I believe other assets will follow.
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I hadn't considered commercial property.

Businesses and companies themselves are not assets, what they own are so I'm not sure they're an indicator of deflation, rather a recession. For deflation to occur there has to be a reduction in the amount of currency in an economy - that is not going to happen. Money printer go brrrr....
 
willrocks said:
On the other side. There's going to be a lot less credit being given out. High unemployment and negative equity risks mean less credit.
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When I think money I don't think bank credit, I think fiscal policy ie the government splashing cash, going guarantor, first-home buyer's, tax credits, UBIs etc etc. Asset price inflation?
 
Ironically a UBI could enhance the level of inequality. The smart people put their pension to good use, the dumb blow it on shit booze and flat screens.
 
willrocks said:
Why wouldn't bank credit be in the same category as fiscal policy?
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CBs have been implementing unconventional monetary policy (lower interest rates etc) for the past decade in an attempt to encourage borrowing and spending and it hasn't worked. So now govs will have to implement fiscal policy by way of tax cuts and cash splashes.
 
willrocks said:
It has. The borrowing and spending went into Australia's biggest asset bubble. The housing / construction industry.
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Don't forget stocks. And yet at the same time we had doomsayers predicting the decimation of the value of those very same assets. :p

But it's true what you say, all the accommodative monetary policy did was inflate asset prices. Now it's the government's turn to protect those inflated prices.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis:

there is an infinite amount of cash in the Federal Reserve. We will do whatever we need to do to make sure there’s enough cash in the banking system.
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Infinite means a never ever ever ever ever ending supply of currency. Enough currency for eternity. Or until the system resets. And that just doesn't apply to the banking system. Kashkari can only talk about the banking system because the Fed and our RBA has no direct contact with the citizens of a nation. We can get money from the government, or if they change legislation it's possible we may be able to get money directly from the RBA. And they've been discussing that and the potential perils/benefits it may yield.

So how do we get to a position of deflation if there is an infinite amount of cash available? For ever? And ever? And ever? For everyone? :)
 
mmm....shiney! said:
Don't forget stocks.
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True. I think unemployment and underemployment will result in lower super contributions, they're used to receiving 10% of everyone's wage.

Then there's people withdrawing from their super. So far approx $4 billion.

Nearly 100% of super money goes into stocks.
 
mmm....shiney! said:
Infinite means a never ever ever ever ever ending supply of currency. Enough currency for eternity. Or until the system resets. And that just doesn't apply to the banking system. Kashkari can only talk about the banking system because the Fed and our RBA has no direct contact with the citizens of a nation. We can get money from the government, or if they change legislation it's possible we may be able to get money directly from the RBA. And they've been discussing that and the potential perils/benefits it may yield.

So how do we get to a position of deflation if there is an infinite amount of cash available? For ever? And ever? And ever? For everyone? :)
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What you're saying is true for the longer term. My position is short-term. Two years. Then the inflation / hyperinflation will hit.

I think they won't initially get inflation going like they expect, so they'll accelerate stimulus, then it'll hit all at once. That will take about 18-24 months to play out.
 
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