Friday, December 26, 2008

Nominal and real

Marc Faber's latest interviews on Bloomberg and CNBC show him estimating the recession to last "2, 5, 10 years". He also says that Asia is better placed to recover, because after the panic of 1998 they deleveraged, i.e. reduced borrowings.

So it's time for me to review my guesses about when the recovery will come for us. A key consideration is inflation, which Faber says is being stoked up for the long term by all the "stimulus" currently put in by panicky Western governments.

I've suggested that we might compare the present, not to the 1929-32 collapse, but the period 1966-1982, when inflation sometimes growled and sometimes roared. The result was that the nominal and inflation-adjusted low points are very far apart: the start-of-month level for the Dow hit bottom in September 1974, but adjusted for CPI, the real bottom was in July 1982.

So when the upturn comes, depends on your definition. I am still guessing that there will be a nominal recovery in 2010, but inflation will erode gains over time and the real turning point may not come until, say, 2016.




3 comments:

James Higham said...

It seems logical that Asia will come out first, as they are less dispirited and used to seismic shifts in their situation.

AntiCitizenOne said...

I don't think the government can do anything about debt deflation, so if they print LOTS of money all we will get is inflation of core goods and more deflation in debt bought goods.

Monetary regulators DO however have to walk a fine line to prevent people hoarding physical cash and destroying money velocity.

Sackerson said...

James: you could be right, for them it's the "make do and mend" attitude we've lost since prosperity arrived.

ACO: hoarding cash - that's the way to bring 'em down.