Discussion in 'The Economy' started by Tropo, 12th Jul, 2009.
The Brave new bOND market
One can only wonder, what the increasing sale of Japanese and American bonds have on the Australian marketplace. Especially on the defensive funds that a lot of retiree's like holding. These watered down bonds may force hard times apon the elderly.
How does the monetizing of this debt (which would be highly inflationary) correlate to HS Dent's deflationary scenario.
As I understand in the Dent scenario demand for all goods and services will reduce in line with a move of baby boomers from a spend mindset to a save / (dramatically reduced spend) mind set with the next group of spenders smaller than the baby boomer bubble thus we end up with a larger supply than demand - reduced economic growth.
My understanding is that reduced economic growth at a time of high inflation equates to stagflation.
So in a stagflation scenario what happens to assets does the value of assets reduce /stay the same (thus effectively reduce) reflecting the economic climate or does the value of assets simply inflate in line with inflation.
By the way the population grouping for Australia is slightly different to the USA. The Aust peak pop spreads over a age group 35-49 whereas the USA peak is 46-50.
I'd imagine it will largely depend on asset class, and also how central banks deal with the situation.
As in real estate prices under a stagflation situation would be obviously pushed higher due to inflation, but at the same time pushed lower due to rising unemployment and potentially stagnate (or falling wages). However if they try and break the back of inflation, they will need to push interest rates quite high which will obviously hurt real estate along with the rest of the economy.
Alternatively commodities can do well in stagflation due to inflation. A lot of people did well with gold investments in previous stagflation periods, and I'm willing to argue that the US has generally been in a mild stagflation period since 2000, and gold has been a great investment over that period.
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