Jim Jubak on Deflation
By Barry Ritholtz - December 27th, 2008, 7:04AM
Hey MSN! How about embeddable videos? I know Microsoft didn’t invent it, but this video technology sucks.
Don’t you want to increase your video views and ads served? Its nearly 2009! Embeddable is already a few years old, but this Windows video is decades old!
Are you that afraid of Ballmer?Are you also forbidden from using iPods and Google? You guys will never be a first rate site — despite the good content — until you get serious about the tech.
Seriously, get with the times. Your non-embeddable, junk video technology is strangling your content.
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I normally steer clear of non-embeddable video, but this was good enough to post:
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December 27th, 2008 at 9:12 am
A good explanation for somebody with some economic background. But what if your grandma or a teen or a neighbor who knows little about economics asks you?
In the ealy 1970, you could buy a house for $30,000. You made a nice down payment, took a 30 year mortgage and your monthly payment was $300. You made $15,000 a year back then. Fast forward to 1995…due to inflation, your house was worth $300,000 and you were now making $60,000 a year. Your mortgage debt and principal payment stayed the same!!!.. due to higher insurance and taxes, maybe your payment increased to $600 a month! You are now paying only 12% of your gross pay, vs. 24% when you started, plus you have payed down principal and have massive equity. You paid back the 1970 loan in massively inflated 1995 dollars.
Now imagine deflation, where your house is worth less than you paid, and because of deflation, your salary doesn’t rise much either, or even falls because you are laid off from wall street and have to work at Home Depot. The only saving grace is, it is cheaper to fill your gas tank (Mustard Seed)…your mortgage stays the same and they may even hike your taxes to help your state’s massive budget crisis. You also have credit card, auto and student loans to pay off with more expensive dollars. Oh no!
December 27th, 2008 at 9:49 am
Well, on the technology… I still haven’t figured out how to fix, but in the summer I had the bandwidth to actually watch videos you post and I innocently hit one of those upgrade or install buttons that go with some and my sound on my computer hasn’t worked properly since. Apparently the technology completely shuts down the sound system if you use a screen vertical instead of horizontal.
And the stupid video still wouldn’t work.
December 27th, 2008 at 9:55 am
“What’s so terrible about Deflation” ? I have no idea. I couldn’t get it to work either.
December 27th, 2008 at 10:01 am
I clicked on Video Options above and the crazy thing worked for me?
December 27th, 2008 at 10:13 am
click on playlist, then select the right pic
December 27th, 2008 at 10:20 am
The whole system is predicated on inflation. That is why Ben is so scared. Jubak should have explained in more detail the effect deflation has on outstanding debt. If the US did not have so much private debt then deflation would not be so bad and lower gas prices would be a mustard seed. I suspect lower gas prices are acting as a false positive at this point.
December 27th, 2008 at 10:47 am
He says, “Lots of people want to borrow but no one wants to lend”. How did the existence of a large body of frustrated (presumably credit-worthy) borrowers become such common wisdom? I must travel in the wrong circles.
Does anyone know whether there is a factual basis for the claim that lots of people want to borrow?
December 27th, 2008 at 10:55 am
For those with no debt and lots of cash, their standard of living would increase with deflation. Unfortunately those individuals are a minority in western civilization and must live under the tyranny of the majority which dictates policy.
Banks fail under deflation and thrive with inflation. ‘Nuff said.
MSN videos suck, too.
December 27th, 2008 at 10:57 am
Won’t work for me, either. I use Linux with the Opera browser and Microsoft stuff simply is another world… I don’t go there and I don’t miss it.
December 27th, 2008 at 12:05 pm
MSN’s Moneycentral is a study in mismanagement. 10 years ago, it was far and away the best free financial site. Their stock screener was the most useful tool one the web. You could do macro research because it would give you actual counts of companies that met a criteria (not this “best 200″ crap). I have watched in dismay as the site went from amazing to almost useless.
They are so lucky that they have been able to retain the services of Jim Jubak, Jon Markman, and Bill Fleckenstein, who are always worth reading, or watching. I don’t read these guys as often as I would like to because I can’t stand seeing what a train wreck the site has become.
Anyway, Jim’s still cool.
December 27th, 2008 at 12:10 pm
“What’s so terrible about Deflation” ? I have no idea.
1. Deflation causes people to postpone purchases as they wait for prices to fall further in the future, thus reducing aggregate demand, which reduces business profits, which results in more layoffs, which further reduces aggregate dammed, and the economy spirals downward.
2. Deflation increases real interest rates, thus reducing borrowing, which reduces both aggregate demand and capital investment, thus also worsening the recession and/or prolonging it.
That’s my simplistic take on it.
December 27th, 2008 at 12:16 pm
Ha! “aggregate damned” above should be aggregate demand, as I’m sure you realized. Damn that damned spell checker! Or is it my drifting mouse pointer? I usually always write in Word to minimize typos and misspellings, but now I sometimes am surprised later to see that, even though the spelling is correct, it’s the wrong damned word!
December 27th, 2008 at 1:54 pm
Heh, if it doesn’t work with Mac & Flash, it’s dead to me..
And “Realvideo”?! 1998 called, they want their BUFFERING… BUFFERING…. BUFFERING….
December 27th, 2008 at 2:06 pm
I watched several of the Jim Jubak videos.
I agreed with much of what he said, but on one of the videos, he argued that we should be doing all of the following:
(a) using taxpayer money to buy up toxic assets from banks;
(b) throwing taxpayer money at the auto companies;
(c) rewarding reckless homebuyers who got in over their heads by giving them taxpayer money, along the lines of the Sheila Bair proposal.
On these points, I don’t agree.
December 27th, 2008 at 2:26 pm
Beside not embedable, the video cannot be seen on the Opera browser & that is a very seldom thing…
December 27th, 2008 at 3:42 pm
KJ Foehr, you are wrong on both counts.
Steve Barry, your reasoning is too superficial to draw any kind of conclusions from and is further economically unsound.
As Tony said, there is nothing wrong with deflation itself. The only economic inefficiency resulting from monetary phenomena is too much of either, ie too high inflation or deflation, or a high variance of the rate, from the uncertainty both entail.
The problem with deflation arises only because of the current indebtedness of the west. There isn’t any decline in real aggregate demand with deflation (if the debt is not excessive), instead there is a shift from consumption to investment(savings). Finally, deflation does not increase real interest rates but instead reduces nominal rates. Real interest rates (long term, i.e real mortgage rates) are unaffected by monetary variables, except when as already mentioned, prices are either not currently or not foreseen to remain reasonably stable.
December 27th, 2008 at 3:54 pm
The video doesn’t work with Google Chrome, either. Ah well, I’ll trust it was interesting to watch.
December 27th, 2008 at 3:54 pm
KJ Foehr Said:
“Deflation causes people to postpone purchases as they wait for prices to fall further in the future”
I’ve never been able to find anything except anecdotal evidence of this, but I can find anecdotal evidence to the contrary too. Best example – computers. It’s a well known fact that the computer you buy today will be faster and cheaper even 6 months from now. This has been going on for 40 years. Why hasn’t this killed the computer industry? Because knowing prices will go down in the future does not prevent purchases.
Prices go down because of improvements in productivity thanks to the competition of the free market. In a real free market, prices are supposed to decrease. This is the dividend you get with competition – it is there to benefit the consumer at the expense of the producer. If you are a producer and you can’t improve your productive capabilities you die to the competition that can.
Isolationists are in bed with the producers are the expense of the consumers.
December 27th, 2008 at 3:56 pm
That’s *inflationists* are in bed with the producers are the expense of the consumers.
December 27th, 2008 at 5:39 pm
who uses MSN anyway? gramma and grandpa?
December 27th, 2008 at 5:54 pm
The problem for you who couldn’t see it is that it works on IE and FF in Windows and that’s about 80-90% of the market, no matter what Apple marketing says. Sorta like when I had Beta and everyone else had VHS.
I’m surprised they haven’t switched to Silverlight which has Mac and Linux versions. Have seen it work fine on a Mac. But, that’s one problem with MS. They are so big, one division doesn’t know what the other is doing.
December 27th, 2008 at 7:22 pm
Video doesn’t work for me in Win XP SP3 either in FF or IE7. Actually, I always have problems with MSNBC and CNBC videos. Rarely will they workin FF. Sometimes they will work in IE. They seem dependent on Active-X. OTOH, videos direct from Microsoft itself such as MSDN and TechNet work fine in both IE & FF.
On deflation, here are two articles I think worth reading:
==================
1.
Deflation creates incentives to save and postpone spending because prices will be lower and purchasing power greater in the future. This pattern depresses spending and weakens the economy. At the same time, deflation worsens repayment burdens for borrowers, because the burden of repaying debt increases with deflation. This is because debts remain fixed in dollar terms, but wages and income typically fall during deflations. Japan presents an ongoing example of the ill effects of deflation on a nation’s economic performance. (See International Finance Discussion Papers, “Preventing Deflation: Lessons from Japan’s Experience in the 1990s.”)
Link
2.
Should We Be Scared of Deflation?
By martha.c.white
Created 11/19/2008 – 7:33pm
“But wait-weren’t we just wringing our hands over $4.50 gas and $4 milk? Don’t we want low prices?
Well, yes and yes, but no. Low prices are good when they stem from an increase in production efficiency or market competition. When deflation is the reason, those prices aren’t falling in a vacuum. Along with reverse sticker shock, you’re getting paid less, your house is worth less than it was a few years ago, and your 401(k) tanks. The only thing that hasn’t gone down is your debt, and there’s the rub: Whatever you owed on credit cards, student loans, and your mortgage before deflation doesn’t change, although now you have less money to pay it off. When it comes to mortgages, there’s an added disincentive to keep paying if home values have fallen so far that a turnaround looks unlikely. Businesses and even governments wrestle with this same problem on a much greater scale. A tandem drop in salaries and revenues might theoretically even out (although that’s certainly no guarantee). The bigger problem is that debt obligations are still fixed, leading to a budgetary nightmare.”
Link
December 27th, 2008 at 8:43 pm
Microsoft extended their downgradable Vista-to-XP OEM OS this week… because people hate Vista. Box manufacturers hate Microsoft (though Ballmer’s call-in support line is good… hahaha.)
Their copy, adopt, extend model doesn’t work when:
1) People have caught on that they will be locked in
2) People hate them
3) There’s no one to call for support
Who else could adopt and adapt Jerry Seinfeld and NOT be funny? Analogous to their crappy, ripped of software “ideas.”
Don’t forget, the Bush administration’s corporate bitch, Charles A. James, gave them no fine for their convicted violations. James, the man on the job, left the White House to take a job with Chevron. Anyone who works at or with Chevron should remind Mr. James of his malfeasance.
Imagine any other tech stock with their cash, with their platform. MSFT will be the biggest loser in the upcoming restructuring of the US economy, bigger than the autos.
Short MSFT, Long GM and FORD.
December 27th, 2008 at 8:57 pm
Microsoft is like the greedy tabern keeper in the book “Les Miserables”. Remember back in the late nineties when somebody tried to make some trouble at the Capitol building? All of a sudden the steaming video on my windows 95 system with a crappy 28k modem was working like it never had. There were no delays for buffering. After the crisis passed, the streaming videos returned to their glacial pace. This proved to me how much bullshit is involved in this video media. Even then they were putting commercials in these short videos. Microsoft does everything good for the customer when they have no other choice. They want to charge for everything even though they make a huge profit on their dial up fee.
In regards to Jubak, he’s smart but he doesn’t see the bigger picture. He invests based on profit and conscience be damned. We don’t need more of this. He only blows the whistle on a corporation when everybody else has been screaming about it for months. Deflation isn’t going to happen because the dollar isn’t on the gold standard, period. Our government will proceed down one of two paths, inflate or die OR inflate and die (hyperinflation). Well, there’s always barter. What ya got to trade?