Where's the inflation, Mr. Shin?

Here is an interesting interview with Hyun Song Shin, Economic Adviser and Head of Research at the Bank for International Settlements, on the topic of inflation.

This interview is not obscure econo-speak that only quants can follow — in this interview, the questions and answers are short, clear, and to-the-point. Give it a look.

Where’s the inflation, Mr Shin?


Good read,

gives a good insight of why low interest rates are dangerous and the addiction of the economy to low interest rates, once introduced, causes more damage then healing.

Like the real estate bubble of japan, once it collapsed, japan introduced 0% interest rate policy to stimulate the economy, and even 25 years later those stimulas and the 0% interest rate policy had absolutely no effect on improving the conomy. But everytime someone introduces the idea of higher interest rates you find a million companies, politians and panic driver who yell “noo, then we will be in serious problems”. unfotunately the western economies have started following this idea of 0% interest rates. what it will generate? the future will tell. but one thing should be kept in mind, insurances, banks and other financial isntitutions rely on having high interest rates to create profit/stability of funds - pension funds etc. the list goes on forever - a industry/sector which has become the largest and probably most important sector in the western world - not because it is so good, but because the west has become a “old-men” economy where saving/maintaining standard is more important then to create new markets <- especially in europe. with low interest rates they cut of their own concept of doing this.

sidenote: sunds familiar, doesnt it? real estate bubble, low interest rates, rise of interest rates is seen as demon haunting jobs etc etc

Deflation should never be underestimated, it’s good that a journalist asks the questions, though not sure who the ‘everybody’ is in his first one, and it is good that guys who are advisors and researchers get asked those - but the real world can be often remote from both journalist and researcher.

Also the age-old separation of long term and short term, the reality is that everything that is long term starts off as being short term, diesel fuel just hit below £1.00 (0.99p to be exact) per litre at my local station, today is the first day in maybe 10 years - so it is now short term, my business will benefit, only history(time) can separate whether long or short term.

Perhaps the 7th question reflects more of a journalist, we do not [B]need[/B] rising prices, but from a business perspective we need falling prices even less.

Ask any oil retailer, do they currently buy stocks in bulk or do they buy at an absolute minimum, then too, ask the oil wholesaler, then ask both guys whether they are hiring - that’s deflation.

About oil youre completely right about the investments, theyre getting reduced heavily. jobs beeing lost. etc. but that is not a product of deflation itself, it is held to one of the oldest principles of economy - supply vs. demand. to much oil, prices fall. thats a natural thing and very good for economies (at least for us, the western block which isnt really famous in producing oil but rather in consuming it)

Now is about the right time to start investing into the oil industry. prices r low, companys cost less then half they costed a year ago. but then again its a dangerous thing for long term investors, if (a big IF) elecric car industry starts running smoothly the demand for oil will shrink even more, and all the oild producing countries dont know anything else then producing oil since 100 years. they didnt invest in alternative industries or knowledge, so their simply going to produce more oil.

Yeah, your post is on the nail, just reading an article today about Saudi Arabia, the journalist posed the question, and then answered it, many major oil producers will likely return to whence they came, back to being a Nomad in the desert… they still have time, but it is running out fast.

Left the outside light on last night by accident, no biggie, its now LED, so minimal energy wasted.