Visual Inflation/Deflation For Dummies

[Rich Toscano]

Citydweller, the problem is that it’s too early to say that people haven’t suffered as a result of the stimulus… we haven’t had to pay for it yet. When the time comes that we are expected to actually start paying down our debt (or when the time comes that the world realizes that we’re not actually going to pay it down, more likely), that’s when the effectiveness or lack thereof of the stimulus will be seen.

[CA renter]

[quote=Rich Toscano]Citydweller, the problem is that it’s too early to say that people haven’t suffered as a result of the stimulus… we haven’t had to pay for it yet. When the time comes that we are expected to actually start paying down our debt (or when the time comes that the world realizes that we’re not actually going to pay it down, more likely), that’s when the effectiveness or lack thereof of the stimulus will be seen.[/quote]

Exactly, Rich. It’s entirely premature to declare victory over “the crisis.” We haven’t even gotten the bill.

[CA renter]

[quote=Rich Toscano]Citydweller, the problem is that it’s too early to say that people haven’t suffered as a result of the stimulus… we haven’t had to pay for it yet. When the time comes that we are expected to actually start paying down our debt (or when the time comes that the world realizes that we’re not actually going to pay it down, more likely), that’s when the effectiveness or lack thereof of the stimulus will be seen.[/quote]

Exactly, Rich. It’s entirely premature to declare victory over “the crisis.” We haven’t even gotten the bill.

[CA renter]

[quote=Rich Toscano]Citydweller, the problem is that it’s too early to say that people haven’t suffered as a result of the stimulus… we haven’t had to pay for it yet. When the time comes that we are expected to actually start paying down our debt (or when the time comes that the world realizes that we’re not actually going to pay it down, more likely), that’s when the effectiveness or lack thereof of the stimulus will be seen.[/quote]

Exactly, Rich. It’s entirely premature to declare victory over “the crisis.” We haven’t even gotten the bill.

[CA renter]

[quote=Rich Toscano]Citydweller, the problem is that it’s too early to say that people haven’t suffered as a result of the stimulus… we haven’t had to pay for it yet. When the time comes that we are expected to actually start paying down our debt (or when the time comes that the world realizes that we’re not actually going to pay it down, more likely), that’s when the effectiveness or lack thereof of the stimulus will be seen.[/quote]

Exactly, Rich. It’s entirely premature to declare victory over “the crisis.” We haven’t even gotten the bill.

[CA renter]

[quote=Rich Toscano]Citydweller, the problem is that it’s too early to say that people haven’t suffered as a result of the stimulus… we haven’t had to pay for it yet. When the time comes that we are expected to actually start paying down our debt (or when the time comes that the world realizes that we’re not actually going to pay it down, more likely), that’s when the effectiveness or lack thereof of the stimulus will be seen.[/quote]

Exactly, Rich. It’s entirely premature to declare victory over “the crisis.” We haven’t even gotten the bill.

[CA renter]

[quote=Rich Toscano][quote=citydweller]So does this mean the stimulus really was necessary to avoid a downward, deflationary spiral?[/quote]

“A” stimulus, maybe, but “The” stimulus? (The one that mostly bailed out financial companies?) No… good writeup here:

http://www.ritholtz.com/blog/2010/08/bailout-counter-factual/

Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. People might put something off for a little while, but that would only last for so long because A) life goes on and B) people would eventually want to capitalize on the good deals. Look at the computer industry as evidence, prices are constantly dropping there and yet people somehow buy computers.

The more harmful aspect of deflation, in our society, is that if the society is highly indebted then deflation causes the real burden of the debt to rise.[/quote]

Thank you, Rich!

This one always gets me, too.

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.

It’s like an elevator going down. At every floor, some people are getting off while others are getting on. While there might be some instances where there are no bids, at some point, a buyer will step up and set the price (and it WON’T be zero).

Agree with your last part, too. The **real** reason they don’t want deflation to happen is because we have a debt-based monetary system.

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.

[CA renter]

[quote=Rich Toscano][quote=citydweller]So does this mean the stimulus really was necessary to avoid a downward, deflationary spiral?[/quote]

“A” stimulus, maybe, but “The” stimulus? (The one that mostly bailed out financial companies?) No… good writeup here:

http://www.ritholtz.com/blog/2010/08/bailout-counter-factual/

Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. People might put something off for a little while, but that would only last for so long because A) life goes on and B) people would eventually want to capitalize on the good deals. Look at the computer industry as evidence, prices are constantly dropping there and yet people somehow buy computers.

The more harmful aspect of deflation, in our society, is that if the society is highly indebted then deflation causes the real burden of the debt to rise.[/quote]

Thank you, Rich!

This one always gets me, too.

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.

It’s like an elevator going down. At every floor, some people are getting off while others are getting on. While there might be some instances where there are no bids, at some point, a buyer will step up and set the price (and it WON’T be zero).

Agree with your last part, too. The **real** reason they don’t want deflation to happen is because we have a debt-based monetary system.

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.

[CA renter]

[quote=Rich Toscano][quote=citydweller]So does this mean the stimulus really was necessary to avoid a downward, deflationary spiral?[/quote]

“A” stimulus, maybe, but “The” stimulus? (The one that mostly bailed out financial companies?) No… good writeup here:

http://www.ritholtz.com/blog/2010/08/bailout-counter-factual/

Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. People might put something off for a little while, but that would only last for so long because A) life goes on and B) people would eventually want to capitalize on the good deals. Look at the computer industry as evidence, prices are constantly dropping there and yet people somehow buy computers.

The more harmful aspect of deflation, in our society, is that if the society is highly indebted then deflation causes the real burden of the debt to rise.[/quote]

Thank you, Rich!

This one always gets me, too.

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.

It’s like an elevator going down. At every floor, some people are getting off while others are getting on. While there might be some instances where there are no bids, at some point, a buyer will step up and set the price (and it WON’T be zero).

Agree with your last part, too. The **real** reason they don’t want deflation to happen is because we have a debt-based monetary system.

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.

[CA renter]

[quote=Rich Toscano][quote=citydweller]So does this mean the stimulus really was necessary to avoid a downward, deflationary spiral?[/quote]

“A” stimulus, maybe, but “The” stimulus? (The one that mostly bailed out financial companies?) No… good writeup here:

http://www.ritholtz.com/blog/2010/08/bailout-counter-factual/

Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. People might put something off for a little while, but that would only last for so long because A) life goes on and B) people would eventually want to capitalize on the good deals. Look at the computer industry as evidence, prices are constantly dropping there and yet people somehow buy computers.

The more harmful aspect of deflation, in our society, is that if the society is highly indebted then deflation causes the real burden of the debt to rise.[/quote]

Thank you, Rich!

This one always gets me, too.

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.

It’s like an elevator going down. At every floor, some people are getting off while others are getting on. While there might be some instances where there are no bids, at some point, a buyer will step up and set the price (and it WON’T be zero).

Agree with your last part, too. The **real** reason they don’t want deflation to happen is because we have a debt-based monetary system.

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.

[CA renter]

[quote=Rich Toscano][quote=citydweller]So does this mean the stimulus really was necessary to avoid a downward, deflationary spiral?[/quote]

“A” stimulus, maybe, but “The” stimulus? (The one that mostly bailed out financial companies?) No… good writeup here:

http://www.ritholtz.com/blog/2010/08/bailout-counter-factual/

Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. People might put something off for a little while, but that would only last for so long because A) life goes on and B) people would eventually want to capitalize on the good deals. Look at the computer industry as evidence, prices are constantly dropping there and yet people somehow buy computers.

The more harmful aspect of deflation, in our society, is that if the society is highly indebted then deflation causes the real burden of the debt to rise.[/quote]

Thank you, Rich!

This one always gets me, too.

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.

It’s like an elevator going down. At every floor, some people are getting off while others are getting on. While there might be some instances where there are no bids, at some point, a buyer will step up and set the price (and it WON’T be zero).

Agree with your last part, too. The **real** reason they don’t want deflation to happen is because we have a debt-based monetary system.

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.

[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?

[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?

[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?

[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?

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