I am no fan of Core Inflation measures; Stripping out inflationary items because they are volatile is not helpful.

In today’s NYT, however, Floyd Norris makes the argument that comparing the US with Japan’s battle with inflation, then disinflation than deflation might be instructive. It is a rather compelling counterpoint to John Mauldin’s O Deflation, Where is Thy Sting?.

Excerpt:

“Since the collapse of the housing market in the United States and the beginning of the global financial crisis, the Federal Reserve has made avoiding deflation a major priority, recalling the experience of Japan after its bubble burst in the early 1990s. The Fed has set an annual inflation target of 2 percent or a little lower, but is not getting it.

The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core inflation rate — excluding food and energy — rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.

The core inflation figures are charting a path roughly similar to one shown in Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.”

>

Inflation?

click for large graphic

chart courtesy of NYT

>

Source:
After the Fed’s Action, Watching Inflation’s Trajectory
FLOYD NORRIS
NYT, November 19, 2010

http://www.nytimes.com/2010/11/20/business/economy/20charts.html

Category: Federal Reserve, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

46 Responses to “Deflation: Japan versus USA”

  1. More Norris:

    “Deflation is feared for several reasons. If consumers come to expect it, as happened in Japan, there is a strong incentive to delay purchases while waiting for a lower price. That can restrain economic activity and increase unemployment. In addition, deflation places downward pressure on asset prices, worsening the situation of those who are indebted.”

  2. franklin411 says:

    Deflation is good…it helps us buy more stuff. I know it’s true because I checked the internet, as instructed by that great genius of finance, Eric Bolling.

  3. KentWillard says:

    What isn’t widely discussed, but is pretty common sense if you think about it, is that a lot of our disinflation is due to falling house prices which are expressed as imputed rent in the CPI. Take that out, and our inflation rate isn’t quite so low.

    Nor, for that matter did Japan have rapid deflation – it was consistently between 0 and 1%. And it was driven by a steady fall in durable goods. Not that I want to emulate Japan or their deflation. A little general inflation (not just asset inflation) would be great, particularly to help borrowers pay their mortgages.

    Check out graphs on inflation/deflation at:
    http://www.kentwillard.com/5-ducats/2010/11/japans-deflation.html
    http://www.kentwillard.com/5-ducats/2010/11/why-we-wont-have-deflation.html

  4. dead hobo says:

    I am skeptical of Japanese deflation. I am starting to wonder if Japanese deflation is one of those things people accept as true, but is really only true enough to trot out a couple of favorite statistics and claim they are absolute proof of significant and complete deflation.

    Japanese pay the same price for commodities as everyone else. Commodities are base materials for everything we use. If we are paying more for everything made from commodities then they must also be paying more. Therefore, if costs are rising and prices are falling, then by now most Japanese items must be selling far below cost. I don’t think this is happening.

    The price of existing real estate is set like the price of any other used item. It will cost what the market will bear. This differs from new real estate which is priced based on cost. While the price of new real estate will influence the cost of existing real estate, they are really two different markets that overlap. From what I have read, the Japanese will sometimes live in a closet sized home and be happy about it. While New York may have parallels to Japan in this respect, the rest of the country certainly does not. In other words, real estate between Japan and the US provide no comparables that can be used for credible reference.

    Japanese labor is culturally weird. Again, no comparables now or expected.

    So, where is the Japanese deflation? In what sectors and items? How do those sectors compare to the US?

    I think prices failing based on deleveraging is being conflated with textbook deflation, and a false relationship has become ‘what everyone knows’.

  5. dead hobo says:

    KentWillard Says:
    November 20th, 2010 at 10:59 am

    Nor, for that matter did Japan have rapid deflation – it was consistently between 0 and 1%. And it was driven by a steady fall in durable goods.

    reply:
    ————-
    Please explain how this happens when the Japanese pay the same prices for commodities as the rest of the world?

  6. ronin says:

    I never understood the purpose of the core CPI–it’s such a huge joke! Exclude food and energy?!?! LOL!

    I’m an American, have lived in Japan since 1998, and the only thing that has deflated in this country is the size of people’s bank accounts! A single apple is still freak’n 500JPY, a beer in Roppongi is still 1000JPY, an apartment inside the Yamanote sen is still ridiculously small and expensive, and t-shirts in Shibuya are still over 5000JPY with or without improper English written on them!!!

    So tell me guys, where is the deflation??? These numbers and charts are as manipulated and touched up as an over 35 year old actress on the cover of Glamor magazine.

  7. obsvr-1 says:

    could there be a gov’t subsidy such that the gov’t debt continues to advance, including the subsidies ?

  8. dead hobo says:

    Just to throw out an idea … maybe Japanese macro statistics are as phony as Chinese macro statistics, and we are just being duped by a soap opera scenario that was factual once, but is now being played out for unspecified reasons.

  9. RW says:

    Deflation can be a complex phenomenon no less than inflation but the bottom line for most folks in a deflation is that debt acquired when dollars were ‘cheaper’ becomes crushing when the dollar becomes ‘expensive.’

    A system that is attempting to deleverage is, by definition, still debt heavy but may work its way out if the means to pay off that debt, the dollar in our case, remains ‘cheap’ enough and the economy is growing (however slowly) so the employment situation can improve.

    Deflation in a deleveraging system with high unemployment is a WMD of the first magnitude, as good a way to wreck an economy and a country as you’ll find.

    The rentier class and owners of debt such as those Mauldin serves are not particularly troubled by this of course, at least at first.

  10. jz says:

    I read once that 70% of costs stem from labor, and the most expensive cost in most businesses is in fact labor. So besides real estate, there is no inflation in labor costs.

    Bernanke’s helicopter speech was actually an excellent one. The mechansims that he pointed out to fight deflation, he has had to use, however he is targetting the wrong area. He correctly identified the cause of deflation as a decrease in demand, however he has put forth medicine that IMO ensures a decrease in demand. His QE policy has not caused demand to spike but rather caused commodity inflation to spike. With commodity prices soaring, Americans are going to consume less not more.

    Thus, the 2% target inflation is too general. The goal should be to stimulate wage inflation by 2% not commodity and goods inflation, and this kind of inflation cannot be obtained by Bernanke alone.

    The conventional wisdom is to think that QE has caused a huge spike in the money supply; that is not true. See the link: http://www.shadowstats.com/alternate_data/money-supply-charts
    M3 has been quite volatile ever since the fed quit publishing it, but John Williams has been consistent IMO in publishing the truth or at least a true estimate.

    The runup in commodity price then was supposedly due to this expanding money supply due to the fed printing up all this money. In actuality, though the consumer has less money in pocket now than he did in 2008. He also has had his access to credit rolled back.

    And when I actually look at the supply and demand of these various commodities, I see the same thing: a huge amount of capacity with a small uptick in demand. Oil spare capacity is now at 5.4 mbpd compared to one mbpd in 2006. Copper mines are running at 80% capacity versus 90% in 2002. Soybeans have been spiking higher despite the U.S. crop being the best ever. What happens when the truth comes out, that we have plenty of oil, soy, and copper, and a dearth of cash?

    I don’t know how anyone looks at this supply and demand data and sees how this ends well. What we have is another bubble that is going to pop.

  11. KentWillard says:

    dead hobo:

    A lot of my spending isn’t on commodities. A lot of spending is on services, and things that aren’t easily transported (like shelter).

    I remember reading an economics paper that complained that Japan’s price indices were misleading because of poor constant quality adjustments. But creating a measure of prices over the long run is actually quite difficult. What people consume changes over time (i.e. cell phones), and the quality of goods changes over time (a 1950 car vs a 2010 car, or even a PC in 2000 vs a PC in 2010).

    From my fiddling with data from Japan (a surprising amount has English titles), it is inferior to what the US has. Not as much detail and not as much history. Although I rarely find as much data as I want on the US, we are really spoiled compared to other countries.

  12. Joe Friday says:

    jz,

    “I read once that 70% of costs stem from labor, and the most expensive cost in most businesses is in fact labor.”

    Good grief. No, no, no.

    Even the labor costs at General Motors are only about 10% of the price of a vehicle. Likely even less now.

  13. rip says:

    jz: agree totally with your comment that Bernanke’s printing press is spiking commodities due to free speculation money and that that is reducing demand.

  14. northendmatt says:

    To those wondering about how Japan can have deflation if commodities rise… remember, core inflation excludes things like oil and food, so some commodities are excluded. Also, loss of value in real estate would presumably be included in the Japanese experience as well. I don’t claim to know that much about inflation measures, but as I understand it, the point of looking at core inflation is that you see the background trend (rather than seeing high inflation in 2008 and major deflation in 2009, which was all due to volative food and energy prices).

    Real estate markets are the same everywhere. The fact that, in general, people in Japan live in smaller houses says nothing about the resiliency or lack thereof in the American real estate market. That’s like the people who argue that the real estate market is going to rebound any day now, because, “you have to live somewhere”. You do have to live somewhere, but that doesn’t mean you have to buy a McMansion in the exurbs. You could share a place w/ roommates, move in w/ your parents, etc. 18 years hence, Japan still has a huge real estate hangover, and young people are buying micro-houses that are no bigger than a single room in a New York or Boston apartment, because that is all they can afford. This despite the fact that the population of Japan has been decreasing since 2006, putting continued downward pressure on prices. The US real estate market will recover the same way that the Japanese one will – if demographic and GDP trends allow it.

    Finally, even deflation between 0% and -1% is enormously destructive, because it creates the expectation of continually falling prices, which encourages people to sit on their money rather than investing it or spending it.

  15. tradeking13 says:

    I keep hearing that inflation is a stealth tax, so wouldn’t that make deflation a stealth tax cut?

  16. russwinter says:

    The Fed seems mostly focused on final pricing. MIT has a survey of 550,000 products from 53 stores. They also have a daily price index. After slowly grinding higher since late 2009, this now has a much more pronounced upslope to it from 99.80 in in early October to 100.50 this weekend. This index has closing tracked the CPI, until recently. Inflation can emerge quickly so this like ominous.
    http://bpp.mit.edu/daily-price-indexes/

    With the huge increase in input prices I can’t imagine that Chinese exporter have any profit margin left selling to the US. China has fuel shortages and is gridlocked. From a recent Bloomberg story:
    http://www.bloomberg.com/news/2010-11-16/gap-wal-mart-clothing-suppliers-raise-prices-on-terrifying-cotton-costs.html

    -Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs.
    -Some manufacturers aren’t taking orders for next year because of fluctuating cotton prices, J.C. Penney Chief Executive Officer Myron Ullman said Nov. 12.
    -We can give clients a price now, but it will only be valid for a week,” said Tianlong’s Hu.

    There are definitive signs that the Chinese supply chain to the US is already under severe pressure. The normal seasonal drop from August to early February is about 30%. This can be tracked by the Shanghai container index which is already down 30% WITH THREE MONTHS TO GO. http://statsweeper.com/

    ~~~

    BR: Hey Russ (hows things?)

    We mentioned the MIT project earlier this week

  17. Pure-Water says:

    The central bankers (and Floyd Norris) have it a.ss backwards as usual- the weak economy causes deflation, deflation does not cause the weak economy. The whole, if I know something is going to be cheaper in the future, I’m not going to buy it now argument, is intellectually offensive. Think about it, what aren’t you going to buy today because it’s going to be 1 or 2% cheaper a year from now? Here’s some examples:

    -You going to buy the $1.29/pound of broccoli today or starve your kids because it will only cost $1.27/pound in a year?

    -Will you replace your worn out running shoes by spending $79 today, or ruin your back by continuing to wear them for another year so you can save $1.50?

    -Assuming your name isn’t Edward Wedbush, are you going to spend $1000 fixing your leaky roof, or wait a year and spend $980, in the mean time causing even more damage to your house?

    -Will you buy tickets to the NFL game for $100 or hold off on seeing your favorite team because it will only cost $98 next year.

    The only items that might not be purchased in a deflationary environment are a small percentage of luxury good items. Moreover, if someone doesn’t make that purchase it’s probably a good thing because people (and countries) become wealthy by spending less than they make and, if anything, deflation would mildly help encourage a healthier long-term economy.

  18. jz says:

    Joe Friday, but GM is a manufacturer. They are not typical in that they are always going to have high input costs.

    And that is just hourly employees which does not include management costs.

    I looked for that 70% number and could not find it. The best I could do was this, http://www.taxfoundation.org/research/show/25158.html

    So in a $14 trillion economy, we are spending $6.5 trillion on wages, but that does not include total benefits. Toss in health care and other insurance benefits associated with labor expenses, and that 70% number seems viable to me.

  19. DMR says:

    dead hobo says: “Commodities are base materials for everything we use. If we are paying more for everything made from commodities then they must also be paying more.”

    If that were the case, then why do we calculate GDP using PPP measures? Why does a banana cost $2 a pound at Whole foods, but only 10 cents a pound in India? Have you ever compared cost of living in Manhattan vs. Kansas city? Shouldn’t the free market have raised sky scrapers in Kansas city and razed a few blocks of downtown to bring the two to equilibrium?

  20. jz says:

    Sorry, Joe, I meant to erase that comment about GM management costs. They aren’t that significant.

    Though I hope you agree on the larger point. Labor costs make up of a huge portion of industry costs, and there is no/little wage inflation due to labor right now.

  21. jz says:

    “Please explain how this happens when the Japanese pay the same prices for commodities as the rest of the world?”

    Part of this is offset by currencies. Japan has actually paid less for commodities as the yen has appreciated versus the dollar.

    Part of a currency’s value is supply, and currency should get less valuable as more of it is produced, however like everything else, the voting machine can obscure the results. If given the choice, I think most American investors would keep their money in Chinese yuan over dollars given the belief the fed is cranking up the printing press. Everyone including our government is screaming the yuan is undervalued. However, if you look at M2 money supply, it is going up by 2% or so per year in the U.S. and 30% per year in China. Again, I don’t see how this ends well for China and seeing how China is pushing the commodity bubble…

    Then you often have variance in labor costs by country. For example, Japan may pay less for rice if their farmers get lower wages than ours do. Other variances could be tariffs, other taxes, and subsidies.

  22. brianinla says:

    ” A little general inflation (not just asset inflation) would be great, particularly to help borrowers pay their mortgages.”

    The only way it could help borrowers pay their mortgages is if you’re talking about wage inflation. If general prices increase but your wages stay the same (more importantly the average wages amongst the masses) you are now worse off. The Fed cannot cause wage inflation in the private sector. The government can keep giving raises to public employees – good luck with that policy. With global wage arbitrage in full implementation there’s no reason for (real) wage inflation in higher cost labor markets.

  23. dead hobo says:

    DMR Says:
    November 20th, 2010 at 2:32 pm

    Why does a banana cost $2 a pound at Whole foods, but only 10 cents a pound in India?

    reply:
    ———
    $2.00!!?. You’re getting ripped off. I see them for as little as 19 cents and often 39 cents per lb.

  24. Gibbon says:

    I would like to thank many of you for your intelligent and insightful comments. For me, a large number of your ideas rise above the everyday noise. I diligently read your thought provoking entries on a regular basis.

  25. charlesc says:

    Of late, a few recent articles have focused on the Japanese illness:

    ‘Land of the Setting Sun Can Japan Reverse Its Long Decline?

    Very worrying: Of the more than 30,000 Japanese people who commit suicide every year, many are victims of the economic decline.

    http://www.spiegel.de/international/world/0,1518,729660,00.html

    Paul Krugman: ‘Japan’s Horror Story : Not So Scary After All’

    Willem Buiter: Godzilla QE: http://ftalphaville.ft.com/blog/2010/10/29/387806/godzilla-qe/

  26. danny says:

    According to conventional wisdom deflation is bad because people delay purchases expecting a lower price level. But I think this is only true in the short term. If you expect prices to decline for the next year them you might delay buying a PC or whatever until the product has delcined in price. But what if a nation has been in deflation all of your adult life? Will you delay purchases for ever? I think if deflation is permanent or close to then it may have little effect on demand.

    At present I know I can buy electronic items that are likely to deflate in price on an ongoing rate but this wont reduce may demand for electronic items at all.

  27. RW says:

    @danny, if the nation is in chronic deflation — not an unusual event in the days of fixed currency — your own ‘price level’ (your income) would have been falling all along too so unless the price of that electronic item falls faster you’ll never buy it.

  28. danny says:

    @RW

    Im not denying that if real incomes decline so does demand. What I dont agree with is the theory that deflation in prices makes people delay purchases indefinetely. It seems to be only a short term phenomena.

  29. Joe Friday says:

    jz,

    “…but GM is a manufacturer. They are not typical in that they are always going to have high input costs.”

    Actually, manufacturers have higher than the average labor costs, so the 10% would not be reflective of other businesses, where it would be even lower..

    ~

    “And that is just hourly employees which does not include management costs.”

    Good, as “management costs” are not “labor costs”, which is what you posted.

    ~

    “I looked for that 70% number and could not find it. The best I could do was this, http://www.taxfoundation.org/research/show/25158.html”

    The “Tax Foundation” is a useless fake RightWing front group.

    ~

    “Though I hope you agree on the larger point. Labor costs make up of a huge portion of industry costs…”

    Nope.

    Evidence is to the contrary.

  30. Joe Friday says:

    danny,

    Here’s an animated cartoon done by Robert Krulwich that nicely explains economic deflation:

    KRULWICH ON DEFLATION

    http://abcnews.go.com/video/playerIndex?id=6484348

  31. formerlawyer says:

    @Joe Friday

    Take a look at:

    http://www.bls.gov/lpc/faqs.htm#P06

    ” In the U.S. nonfarm business sector, labor cost represents more than sixty percent of the value of output produced. Output per hour in the nonfarm business sector is the productivity statistic most often cited by the press.”

    Further:
    “The broadest measure of productivity published by the Bureau of Labor Statistics is that for the U.S. business sector. Business sector output covered about 78 percent of the value of gross domestic product (GDP) in 2000. The business sector excludes many activities where it is difficult to draw inferences on productivity from GDP. These excluded activities are: General government, nonprofit institutions, paid employees of private households, and the rental value of owner-occupied dwellings.”

  32. danny says:

    @Joe Friday

    I understand all that.

    I am only addresing the misconception that deflation reduces demand on a permanent basis. It is only a short term effect.

    The problem is the feedback loop of lower demand and then wages.

  33. soloduff says:

    Discussion of premeditated inflation should always include the class bias of both the statistics and the dominant theory; amounting to a two-tier system of inflation effects. It is well known that the purpose of the Boskin Commission (under Clinton)–with the magic of hedonics, substitution effects, owner’s implied rent, etc.–was to screw seniors out of some of their cost-of-living adjustments. The hallowed Keynes praised inflation as a surreptitious tax–regressive, it turns out–while the Samuelson economics text on your library shelf praises government-inspired inflation as long as it screws the underclasses, leaving a nice clip for the business class (wages are “sticky,” says the Nobel economist, while prices are not). Moreover, the class bias in both theory and practice is about all there is to the mainstream academic appreciation of premeditated inflation. I.e., once again, the smartest guys in the room (ask them . . .) haven’t a scientific clue as to what they are doing even as they act in bad faith. Prediction: QE2 will not turn out as advertised; but, as ever, the have-not’s will be left holding the bag.

  34. willid3 says:

    i think what we miss is this. i seem to recall that economists don’t recognize inflation unless incomes are going up. but if incomes are going down, that would mean deflation.

    and that has been happening with greater urgency and rapidity in the last decade or so.

    and just maybe it fed the great wall street heist that led to the great recession.
    but wall street wanted the income deflation.

    and they got it too

  35. Joe Friday says:

    formerlawyer,

    “Take a look at: http://www.bls.gov/lpc/faqs.htm#P06

    ‘In the U.S. nonfarm business sector, labor cost represents more than sixty percent of the value of output produced. Output per hour in the nonfarm business sector is the productivity statistic most often cited by the press’.”

    That metric is overly broad as it includes a lot of stuff like retirement income, healthcare benefits for retirees, and lots of other unrelated expenses. You can’t just divide some nebulous total cost by the total hours worked and expect to get anything meaningful.

  36. rktbrkr says:

    Joe Friday,
    GM is an assembler, as they componentize(?) their process their labor costs get pushed downstream,they don’t just purchase engines and transmissions (from captive suppliers) but stuff like dashboard assemblies etc. They make the shell and stuff it.

  37. cognos says:

    Dead hobo-

    Commodities priced in YEN are different. Duh!

    Furthermore, commodity prices ARE NOT UP significantly. I show indexes of commodities up 1-2% annually since mid 90s peaks. And DOWN 30% from 2008 peak.

    Why do you guys constantly repeat this “rising commodity price” mantra? It’s false. I think gas hit $1.50 gal in early 80s. It’s barely moved.

    I’ll take too much inflation over too much deflation anyway. Deflation caused the great depression. See Milton Friedman.

  38. cognos says:

    Barry – why don’t you like “core” inflation? It seems like it’s proved itself as an unbiased indicator.

    I remember you being a raging “inflationist” because of headline inflation back in 2007-08. Turn out wrong.

    Not a peep in the big downturn. Headline inflation hit -2% YOY. Don’t remember you talking about headline then. Why love the vol?

  39. fubsy_cooter says:

    Let’s see…. the federal reserve prints trillions of dollars to hold interest rates at historic lows. Consequently, the portion of the population with arguably the greatest propensity to spend, baby boomers, are now forced to tighten their purse strings due to negative returns on fixed income relative to inflation. Hmmm…..expansion or contraction? I say our policies are contractionary.

    What needs to happen is a cleanse. We have just hit a multi-generational top for credit expansion. Who out there believes that we have bottomed in three years? We have a decade to go with appropriate leadership. With the continuing expansion of debt and spending, this will turn into a multi-decade affair. Reset your paradigms people. Instead of gauging our current situation against the past 40 to 60 years (the length of personal experience), why don’t we expand our frame of reference to the past several hundred years? What happens following multi-generational tops? Pro;onged shifts that remove a societies measures of entitlement, and desire for froth. That is where we are. Frugality awaits. It looks like it will be forced upon us becuase we don;t seem able to choose it for ourselves.

    Get used to it. Its reality. All the jockeying to prevent the inevitable is nothing but a distraction in the present tense to perpetuate hope and illusion. Humans are perpetually limited by the narrowness of our perspectives.

  40. Deflation is feared for several reasons. If consumers come to expect it, as happened in Japan, there is a strong incentive to delay purchases while waiting for a lower price.

    ============================================

    Many have chimed in already. I’ll just add this:

    …there is a strong incentive to delay frivolous purchases…

    I guess when a huge portion of spending is now done by the rich, richer and obscenely rich most of that can be considered frivolous

  41. gman says:

    Commidities are such a small part of the actual overall measurement of “price levels” in an economy. Wheat costs only make up 5%-10% of the price of a box of Wheaties…food itself makes up a small percentage of household budget.

    Wages and real estate are much larger. Cpi using ‘owner imputed rents’ rather than actual shelter costs is tending to understate de/disinflation right now!

    If Heritage/AEI can come on TeeVee or the op/ed page enough and yell “WMD” er…ahhh “hyperinflation” enough people “KNOW IT” to be fact!

  42. Joe Friday says:

    rktbrkr,

    “GM is an assembler, as they componentize(?) their process their labor costs get pushed downstream, they don’t just purchase engines and transmissions (from captive suppliers) but stuff like dashboard assemblies etc. They make the shell and stuff it.”

    And ?

    Welcome to Corporate America.

    :]

  43. kmckellop says:

    Actually what everyone seems to be describing is the symptoms of deflation. IMHO, the origins of deflation are psychological (on a mass scale -collective subconscious?). People in general become more risk adverse. Since world economies are based on credit/debt , banks become hesitant to lend and borrowers become hesitant to spend . As a result the velocity of money (credit) between lenders and borrowers slows down. It’s not unlike physics. When a balloon at STP is exposed to low temperatures ,gas molecules in a balloon slow down, pressure inside the balloon drops, and the balloon deflates. Pumping more molecules ($) won’t reflate the ball, especially as is continues to cool.

    Similarly pumping more air into a punctured tire won’t fix it. The tire need to be fully deflated, repair (GM?…well maybe?) and then reflated (rebuilding confidence in the global economies). a bit Austrian but necessary. After all this is deflation on a global scale.

    BTW as the prices of goods decrease less are produced (lower inventory) which leads to less variety and a scarcity of goods in general. They may have been cheap but they stopped making them.

    IMHO deflation is the ugly but necessary underside following 80 years of credit inflation.

  44. jad714 says:

    I can’t at all see why people would ENCOURAGE inflation. You have money right now. It’s not worth as much as it did in 1950, is it? Now, if it deflated back to the way it was, you’d be well-to-do, now wouldn’t you?

    http://www.philstockworld.com

  45. kmckellop says:

    @jad714

    Agreed that there will be plenty of buying opportunities after we fully deflate…that is if we manage to hold on to our money. Also remember that while money deflates (dollar buys more stuff, like houses) our debt does not i.e. mortgages remains the same…. unless we walk away.(;-)

  46. gordo365 says:

    jad714 – Wall street loves inflation because 6% returns are really propped up by 3% inflation. Kind of like the moving walkway at the airport. It makes it look like you are walking faster than you really are.