[Homestead] Something new.... Deflation
cayadopi at yahoo.com
Thu Dec 25 10:22:57 EST 2008
The first thing that struck me is WHY is that article dated December 19, 2008??? AFTER the fact?
WHY wasn't that article dated one year prior when prices were inflated? Certainly the articles I was reading a year plus ago were warning that a big deflation in prices unfolding.
>From the weird and quirky point of view of me......
Deflation happens right after masses of people buy high.
Deflation is a buying opportunity. Inflation is a selling opportunity.
Helicopter Ben abaondoned the fleet of helicopters about 3 months ago, and has ordered the airforce to man the B-52 bombers, and he has the army,navy, marines and the coast guard and FEMA on stand-by.
--- On Sat, 12/20/08, bobf <bobford79 at yahoo.com> wrote:
From: bobf <bobford79 at yahoo.com>
Subject: [Homestead] Something new.... Deflation
To: homestead at lists.ibiblio.org
Date: Saturday, December 20, 2008, 12:38 PM
>From the editorial board of today's NYT. Many people are worried about
fututre inflation and some are hysterically claiming hyper-inflation. But, for
now, deflation really is the big worry; and it will affect everyone, including
the more self-reliant than average people, homesteaders or otherwise.
At its simplist, deflation is dollars chasing the same or too many goods while
inflation is the corrollary of dollars chasing the same or too few goods.
Inflation is probably 'down the road'. Hyper-inflation is slightly
'possible' , also 'down the road'. And no one with any
knowledge can claim they know if 'down the road' is six months or 16
years. People can ,and do, guess, and some guesses are eudcated and others
aren't; but, they are all guesses.
Deflation is occuring now, it started with real-estate and is expanding quickly
into all parts of the economy. Even if you don't have debt, deflation can
cause you great harm. I have zero -debt. I have had zero-debt for most of my
life, but this deflationary cycle has hit me like a sledgehammer. I am not
unique. The article gives some brief explanation of the danger. Some of the
reader's comments are interesting. Most of the people commenting just do
not under economics well enough to see the bad part of the picture.
oh well. if you are interested, take what you will.................
December 19, 2008, 6:21 pm
Something New to Worry About: Deflation
By The Editorial Board
Hundreds of thousands of people are being laid off. The nation’s leading
banks and carmakers need bailouts. The stock market has had an ugly 2008.
Well, here’s something else to worry about: deflation. This week, the
government announced that prices fell in November for the second month in a row.
It might seem hard to understand what the problem is with falling prices. If
all they mean is that we can buy our Christmas presents for less this month than
we could have a month ago, maybe we can get the decked out Mac after all.
What’s there to worry about?
A lot. If prices persist in their decline, they could be devastating to the
economy — not primarily because of their impact on consumers’ spending
habits but because of their impact on consumers’ ability to service their
Think of it this way: Say you earn $50,000 a year, and have a $200,000
mortgage. If there is heavy deflation, prices and salaries fall. Your salary
might go down to $40,000, but your mortgage would remain the same. Suddenly,
making those mortgage payments has gotten a lot tougher.
American businesses need to service about $11 trillion in debts, according to
the Federal Reserve, a task that will become more difficult as falling prices
eat into their meager profits. Households owe $14 trillion — which will become
a more onerous burden if businesses cut salaries to bring costs in line with
falling revenues or — far more likely — fire more workers.
In 1933, the American economist Irving Fisher argued that depressions are
caused by a chain of events from over-indebtedness to deflation that goes
somewhat like this:
Banks concerned about their corporate customers’ indebtedness demand debt
liquidation, which forces firms to sell off assets at fire-sale prices to pay
Money in circulation declines as banks hoard the dollars, which causes spending
to drop and prices to fall, depressing businesses’ net worth and profits and
throwing many into bankruptcy.
Production is cut; workers are laid off. This deepens pessimism and leads to
more hoarding of money.
This chain of events looks strikingly similar to our current predicament. Banks
aren’t lending, businesses are failing, jobs are being lost and — since
November — prices are falling.
What to do?
Ben Bernanke, the Federal Reserve chairman, got the nickname “Helicopter
Ben” after a 2002 speech in which he argued that the federal government could
defeat a deflationary cycle by flooding the economy with money — even if it
meant taking up Milton Friedman’s suggestion from four decades ago that the
government simply drop cash from helicopters.
(You can read the 2002 speech here.)
The Fed has begun doing that — in a way. Its committee that decides these
matters has agreed to start pumping more money into the economy.
If deflation gets worse, who knows? Maybe Mr. Bernanke will be manning his
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