Dallas Blog

This is the "deflation" that everyone is so afraid of. Demand goes down so prices go down, consumers wait for prices to go down further. Businesses have to reduce costs (layoffs) to keep consumers buying which further reduces demand.

Deflation is hard to pull out of because you must create demand so prices can rise. The checks which the Obamessiah is promising is intended to get people buying so deflation doesn't get firmly rooted.

My opinion is demand will never completely return. With Americans firmly in debt the age of consumerism is over.

Sounds familiar...

http://www.nytimes.com/2008/12/04/fashion/04SHOPPING.html?scp=6&sq=Tim%20Gunn%20sales&st=cse

Chad,

Deflation is a total distraction. The real danger and fear is not deflation but inflation. And, not just inflation but stagnant growth and inflation.

The so called "depreciation" we are experiencing now is just the oil spikes working their way out of the economy. Will demand return to the crack fueled days of the last twelve years--this last yr. excepted--well hopefully not. Will some suppliers and retailers and others be hurt, certainly.

The banks are currently sitting on $600Billion. They've historically had near zero, so when the lending starts again, watch out.

I agree Toots that many prices need to fall, especially houses in California, Florida, and the like. They are indeed unsustainably high, though home sales in California are actually much better than reported.

Another source of inflation is gov't debt. Increasingly we are seeing a greater reliance on municipal bonds, which is really paying the rich to loan us their money rather than simply taxing for those dollars. This taxation plus debt service.

As the many sources of gov't debt we will be paying increasingly for this debt service. This will mean much of gov't's funds are spent with nothing to show. With no signs of gov't spending cuts on the horizon, in fact, a blooming burden looms; we will literally be taxed into inflation.

Deflation will be an issue for no more than 2 quarters, but we will see inflation hit us as soon as 2-3 months to 2 yrs. It is only a matter of time. The longer it takes to hit, the longer it will we will stay totally stagnant. Once the banks realize they have to act, the dollar will sink.

A friendly tip: If you received Borders gift cards over the holidays, you might want to hurry up and use them before it's too late....

Chad, we there are no real dangers of deflation. The Fed is throwing money at this crisis. The trillions of newly printed money will devalue every dollar. Remember when oil was at $140 and everyone was saying no end in sight? They were ignoring that our storage facilities were at 98% full. They were actually beyond 100% as supertankers were used to hide oil.

We do have some deflationary pressures. But these are bureaucratic rather than economic. Wages have stagnated, and we have had real inflation over the past decade, despite what federal figures have shown.

There are a remarkable number of inflationary pressures--many of course deliberately set to make the economy worse. I actually believe we DO need prices to fall in many sectors, health-care, housing, insurance and education are and have been all growing far faster than marginal inflation rates. These are real costs for every person and business.

These create real inflationary pressures. The challenge is that production has risen so strongly over the last 15 yrs, yet wages have stagnated. All as personal and collective debt has grown. This demands inflation.

Inflation is the only way to grow out of debt. The real problem is something that can't be fought by interest rates, growth. Stagflation will return and will represent a logy economy. The regulators/politicos will demand inflation or else our debts would over take us. Deflation won't happen cause it can't.

Again, the deflation we are seeing is just the unwinding of the Gas bubble, coupled with a waiting game for Obama's recovery package. Before interest rates drop to zero, a shrinking dollar will force people to make investments.

Where is money gonna go when 6 mo. T-bills offer no return? It's got to go to work. Taxes will eat parked money, so it's got to go to work. Investors are indeed waiting for the bailout to know the rules of play.

I'm telling you, this is the time to buy gold, and invest in blue chip stocks. I don't believe those will make money against inflation, but every thing else is a blind bet against gnawing losses. "They" want you parked, waiting while smart money is moving slowly.

The scariest thing about these bottomless price reductions is that the retailers are slashing their margins, which in turn means they will go right back to the vendors with their margin agreements and demand money back.
Things could get scary for us over here at the WTC on Stemmons!
BTW, love this blog, first time to post!