[quote=AN][quote=CA renter]
I’m a long-time deflationist bear, but even I have certain price levels and conditions in my mind where I would start buying. I don’t believe for a moment that everyone would stand back and let prices drop to zero.[/quote]
I don’t know about you but the instant I see people around me losing jobs and getting pay cut, I’m going to make sure I CUT EVERYTHING that’s not a necessity. Doesn’t matter how cheap the BMW is, it’s still more expensive than continue to drive your old but working Civic. Until I see light at the end of the tunnel, there will be no frivolous spending, even if things are cheap. Cheap things still require money to be bought and if you lose your job, you have to learn to conserve your money. Just ask people who truly have lived through the depression.
[quote=CA renter]
The wealthiest (asset owners/creditors) would be hurt the most in a deflationary environment — and they benefit the most in an inflationary environment, too. Their “wealth” is dependent on stable/rising asset prices, while the “wealth” of workers is dependent upon wages. Deflation actually helps working people because wages are fairly sticky on the downside and their income affords them greater purchasing power (assuming asset prices decrease faster than wages decrease), while harming investors whose assets lose value with deflation.[/quote]
Uh, that’s a little off in your generalization there. Deflation only helps working people of those working people don’t have hard asset (i.e. houses, gold, etc.) The question is, how many working people do you know that have no asset vs how many working people you know that have asset?[/quote]
Wages/jobs are much more important to most working people than asset prices (usually only their houses and maybe some stocks in their retirement plans). Without wages, they cannot live. If asset prices fall, it might not be pleasant, but at least they could survive just the same as when their asset prices were higher.
NOBODY should be taking on more debt while using “rising prices” as an excuse. You are NOT “extracting equity” when you cash-out or get a HELOC. What you are doing is taking on more debt than anyone would be willing to lend to you under normal circumstances, because you are giving them the right to foreclose on your house if you default. Once people get this through their thick heads, we can heal from this mess.
