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Deflation!

November 19, 2008 RSS Feed Print

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Worried consumers are a troubling part of the economy's deflationary dip today.

The 1 percent drop in the Consumer Price Index, both larger than Wall Street expected and the largest drop since the Labor Department started tracking the data in 1947, came thanks to weak sales of new and used cars, apparel and lodging spending. That says we're holding back on big-ticket items, everyday purchases and travel heading into the holiday season. It's also some fairly strong evidence for the death of enduring notion of the "resilient American consumer."

Yesterday, Merrill Lynch warned it'll get worse:

Moreover, we are just at the start of the deflation story. Our tracking of the November price reports so far indicates even deeper price declines for import prices right on down the line to the end consumer.

Extra: Tim Iacono has some thoughts on why the deflation/inflation debate gets a bit, er, inflated (via Seeking Alpha).

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Let me clarify this for you. Student loans are unobtainable, home equity loans (that is if you can demonstrate that you might have some equity but do it fast beacuse tommorrow you might not), and have you really considered divesting yourself of all that overpriced GE stock you are sitting on. This equates to diminished demand thru diminished disposable when bloated colleges and universities across the nation have overbuilt to drink from the same tainted tap of free money. This by definition will cause demand destruction and price reduction in the near term. Read that deflation. It's very real and a very good thing considering the overvaluation of nearly everything from toilet paper to gasoline.
The thing that we should all really consider is that is it correct to loan banks money on distressed assets which they will use to turn around and purchase the underlying assets in collapse at 20% or less (the hard underlying assets that we all need). These "assets" show up on a balance sheet somewhere when someone realizes that they have overshot 40% south of the cash flow values of these "assets" the values will re-adjust up thru demand pricing. When that happens they will have realized a near 300% profit with taxpayer dollars and will buy back all their warrants from the Fed. What happens then is the greatest inflation since the robber barons forced you to buy from the company store.(Read that implied slavery)
I am personally going to invest in an addition to an existing hemp to steam plant in Columbia. The bonds are yielding north of 16%, and I hear that the smokestack exhaust makes the city downwind very happy. My conscience is clear.

Mike C. of DE 2:49PM November 19, 2008

Show me the 20% price reductions on public college credit hours and hospital stays and I'll believe we are really deflating. Until then, you can know the process is barely started.

of 11:33AM November 19, 2008

While economists hate the term deflation it is the logical outcome from many years of the irresponsible spending caused inflation. Ever since 9/11, our nation has been pumping $trillions into the economy in the name of the war on terror via no-bid contracts while touting economic health until our current situation when the markets collapsed, credit is tight and those who had enjoyed years of prosperity are moaning the blues. It is only the natural consequence of years of partying to be hung-over and in an economy, it's termed as deflation. The great news is that deflation lasts much less time than inflation as the money supply is tightened prices can only drop so far while inflation considers the sky the limit. Yes, we will experience deflation for perhaps a year or so to allow those who have lost to slowly regain. It's called the economic cycle and we have to pay to play!!!

Ray Fisher of NM 11:04AM November 19, 2008

Deflation!

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