Capitol Hill Blue Forums Military & Security Non-Conventional Theories Deflation

This IS NOT an unconventional theory, but I hate to kill any of the current discussions by changing interesting subjects... In a way, it IS unconventional, since it hasn't happened in our lifespan.
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Deflation

While there are many who believe that the world will not go into a period of deflation, many if not most economists would agree that at the very least, Deflation is a distinct and nearby probability.
Rather than a discussion of "Deflation or not", I am proposing that this thread deal only with the matter of deflation, and the ramifications thereof. Perhaps those who would choose to argue the point, could take the argument to another thread, where the pros and cons of whether it may happen could be discussed in context.
There is considerable information on deflation on the internet, both technical, apocrophal amd historical., as well as much in contemporaneous writings.

I believe that the subject is so alien to most Americans, that a thorough discussion would be helpful, not only for purposes of understanding, but for reasons of dealing with it on a practical basis.

Perhaps we could divide the discussion into a number of sub-headings... not to structure the discussion, but to avoid rambling. Here are a few possible areas of discussion.
1. Technical causes
2. Social aspects -sharing housing, pooling resources
3. Managing the household under deflation
4. Deflation in the US vs. international deflation
5. What Government can/should do
6. Social aspects - crime, poverty, education
7. Planning for post deflation.

Few have experienced deflation, and of course it may not happen, but I believe that getting ahead of a problem is good. As a natural born pessimist, I always look to the worst case scenario first., believing that preparing for the worst, allows for profiting more, when the worst doesn't happen.

So... For anyone who's interested, let's have at it!.

For starters, here's Wiki on deflation
Wiki - on inflation

Here's an NPR discussion on the deflationary spiral, that puts it into some perspective. About 4 minutes ... with some comments on the main page.
NPR audio

Checking in to store a link that covers the mechanics that the FED can use to curb deflation. The article is pretty obscure, meaning that the author couldn't see any way that the FED COULD control deflation.
Deflation and the FED Wall Street Journal


At this point, there doesn't seem to be much interest in Deflation among board members, but I have a feeling that this will change.

Right out of the box, the idea of deflation, is good news to most people, since it means lower prices... as long as one is wealthy or still working...

For certain, however long the deflation lasts, it will be followed by big time inflation. Stay tuned...

Long term deflation is indeed bad for any economy as it curbs investment. However, unless you can show one f****** example of "bit time inflation" following deflation in a country as developed as USA (don't give me Zimbabwe as example or USA in 1861) then please do not use that statement as a fact. It is a theory that has not been proved. More than that, it has been proved incorrect in 2 recent examples: Hong Kong and Japan in the 1990s.

RE: inflation
think we've been thru this before... and we just don't agree... let's leave that discussion for another thread...

I think there's enough on deflation, to make it worthwhile as a standalone post.

I'll leave off the inflation/hyperinflation for the sake of the thread.

I would assume that you do consider that deflation is a strong possibility... or maybe not?

I think there is a definate deflation in the prices of goods right now. However, how much of that is due to the settling of the raw material costs which skyrocketed between 2003-2008 and how much is due to economic slowdown?

And regards the hyperinflation following deflation, I can accept that we don't see eye to eye. All I'm asking is that you don't present it as irrefutable fact in your posts when it is just a theory not yet proved anywhere in the real world. I will always call you on that if I notice it.

I believe that raw material costs (commodities) are more of a result of the speculation that occurred when the leveraging of CDO's through the derivative process proved so profitable. (the Enron model).

The time period for this was not 2003 - 2008, but for almost all commodities the rapid increases began in mid 2007.

You can check this here by going to the 5 year charts for the various markets here:
Commodity Price History

The "speculation spike" can be seen at the end of 2006 and in 2007... but there is a steady increase from 2003 to 2006 in almost all those charts. The cost of those raw materials were going up without the help of speculators as it does in any global economic boom.

Also you can see in almost every single one of those charts a crash at the end of 2008. If the raw material price goes does, does it not make sense that the products made with those raw products to go down?

I see the current fall in prices of goods more reflective of that crash in raw materials. If the prices of finished goods was going down without the price of raw materials crashing then I'd be a lot more concerned about deflation and the posibility of deflation lasting a long time.

As jobs are cut, there are also reductions that don't show up on the employment percent.

It's getting "real" now, with pay cuts, and reductions or elimination of 401k plans.
Job cuts - reductions in pay

Deflation is just beginning. Not too obvious yet. Despite frantic tailoring of inventories, the closings and bankruptcies will put incredible pressure on retail pricing.

Still to be determined is whether or not food prices will follow.

A couple of notes: For some of us, it's nmot "getting real" now, it's been real for awhile.

I've mentioned before that I have friends who work in higher education. Apparently there are local private colleges who are cutting staff; at least one is dropping their employee retirement match program. That's a pretty drastic step.