U.S. Economy: Consumer Prices Fall, Raising Deflation Danger

[ElFenix]

Originally posted by: Dufusyte


But if you are a Saver, with money in the bank instead of debts, then deflation is relatively good, since your money goes farther to buy things.

if you're comparing a savings account only, that is probably true, though your savings rate would have to be ridiculously high to offset reduced wages or the chance of losing a job.

however, the rate of increased purchasing power due to deflation is probably much lower than a diversified portfolio during regular economic times.

 

[udneekgnim]

Originally posted by: PingSpike
This is probably a stupid queston...but why couldn't you break the back of deflation by just printing a lot of money?

printing out a lot of money can lead to hyperinflation because as the supply of money increases the value of it will also decrease

for example, you have a dollar and can buy a loaf of bread with it, but the government decides to double the money supply. now you can only buy half a loaf of bread with the same dollar because the money supply has doubled.

it's a rough and not very accurate example, but that's what printing out more money can do to value

anyways, that's what some people fear when talking about the bailout package and the 2 trillion dollars the Treasury is giving out. they fear devaluation of the dollar

 

[Slew Foot]

To illustrate my previous point

http://www.marketwatch.com/new...redit/story.aspx?guid={AD6CD9ED-DDA8-4118-A8D9-32E7A817E4E7}&siteid=yahoomy

People are coming around to the belief that its not a lack of capital thats stalling the credit market, its a lack of credit worthy borrowers. By using standard measures of credit (i.e. people who could get credit in the 80s and 90s) not many people would qualify for credit today.

 

[Zenmervolt]

Originally posted by: halik
There are many, many people that will agree on the behavior aspect of the market as well as reliance on natural distribution for unnatural stochastic processes (Shiller, Nassim off the top of my head and respectively and more generally George Soros). That being said, those two notions in no way leave you the only way to to Austrian economics.

Investors can be systematically irrational at certain times and seemingly naturally distributed returns do suffer from kurtosis, but that in no way validates the Austrian business cycle theory. Plus what happened during the Great Depression should serve as an example to what happens when you don't lower discount rates during credit crunches - was Great Depression a good thing? It certainly was a shock...

True, and I certainly don't mean to say that I fully follow Austrian, only that I don't entirely discard it either.

As far as the Great Depression, that depends on how you define a "good thing". Insofar as it contributed to overall economic knowledge it was as "good" as any failure from which one might learn. It can also be considered "good" in the sense that it is occasionally necessary for things to become incredibly bad before any attention is paid to fixing them. Note that these are not "economic" reasons, but rather fall more into the realm of psychological/sociological reasons. In an ideal world, shocks would be universally avoided, of course. But as we are dealing with humans who (self most certainly included) are often irrational, I believe that some shocks are a necessary and inevitable part of the economic picture and that, insofar as they are necessary to enact critical changes in our economic policies such shocks can conceivably be considered to be long-term "good".

ZV

 

[Shortass]

Interesting read.

 

[TallBill]

Originally posted by: ElFenix

Originally posted by: Dufusyte


But if you are a Saver, with money in the bank instead of debts, then deflation is relatively good, since your money goes farther to buy things.

if you're comparing a savings account only, that is probably true, though your savings rate would have to be ridiculously high to offset reduced wages or the chance of losing a job.

however, the rate of increased purchasing power due to deflation is probably much lower than a diversified portfolio during regular economic times.

Yeah, my net worth is in the positive, but the amount that it is shrinks daily with market losses.

 

[ebaycj]

Yeah. And the falling price of Oil / the rising value of the Dollar has absolutely NOTHING to do with consumer prices falling.

 

[TallBill]

Originally posted by: ebaycj
Yeah. And the falling price of Oil / the rising value of the Dollar has absolutely NOTHING to do with consumer prices falling.

I was wondering this too. I'm just looking for insight, and so far it's been civil!

 

[Slew Foot]

Originally posted by: TallBill

Originally posted by: ElFenix

Originally posted by: Dufusyte


But if you are a Saver, with money in the bank instead of debts, then deflation is relatively good, since your money goes farther to buy things.

if you're comparing a savings account only, that is probably true, though your savings rate would have to be ridiculously high to offset reduced wages or the chance of losing a job.

however, the rate of increased purchasing power due to deflation is probably much lower than a diversified portfolio during regular economic times.

Yeah, my net worth is in the positive, but the amount that it is shrinks daily with market losses.

The absolute amount may be shrinking, but what about its purchasing power?

 

[ponyo]

Originally posted by: halik
DEFLATION = THE BAD
It is incredibly difficult to restart consumer spending if the general sentiment is that stuff I could buy now for $1 will be $.80 in the future. Ask japan how they were doing in the 90s

Also this should put the nail in the coffin of all the Ron Paulesque idiots..ZOMG teh hyperinflation isn't coming.

I fully believe we're at great risk for hyperinflation in the future. We're in the deflation phase. Eventually deflation will be too great to handle and the govt has shown willingness to hyperinflate by expanding its balance sheet as much as needed. I think the strength of the dollar is only temporary and we will have dollar crisis in the future caused by some event that prompts the big shoe to drop. What that is I don't know, when it happens I don't know. I plan to convert some of my assets into yen, gold, and commodities as hedge. I'm just waiting for the right moment as the dollar continues to strengthen and deflation increases.

 

[Slew Foot]

How long is Ben Bernake in office for? He's been a long proponent of hyperinflation to stave of credit crisis'. Will Obama replace him or does he get to stay? I thoguht I read somewhere about Obama looking to put a Volkner type into the Fed, but I cant confirm this.

 

[nullzero]

So where is the food price deflation ? heh

 

[cubeless]

there will be food price drops, it just is going to take a bit for the market to start succumbing to the downward pressure...

and once we flop over into inflation due to the dollar printing we can inflate our way out of our debts to china and the rest... buwahahaha!!! it's the master plan!!!

 

[AlienCraft]

Unless the middle class is growing, the economy will stagnate.
The problem with this academic economics model is that wages haven't kept pace with company earnings, unless you include executive compensation packages.

When wages rise, spending will increase. That part is elementary.
Every drop in fuel is like a raise for me, only I'm not spending it this time. I'm banking it and only spending in bulk and for long term.