Visual Inflation/Deflation For Dummies

[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?

[Nor-LA-SD-guy]

Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.

[Nor-LA-SD-guy]

Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.

[Nor-LA-SD-guy]

Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.

[Nor-LA-SD-guy]

Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.

[Nor-LA-SD-guy]

Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.

[Anonymous]

[quote]Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. [/quote]

Consumers putting off purchases is only one part of the dynamic of the “spiral.” Probably the bigger problem with deflation is that producers will also be hesitant to produce, or to invest in capacity to produce, or to innovate new products, etc.

Why manufacture a car if there is a risk that the finished product will cost less than the inputs? Hold on to the cash and there is less risk of operating loss on the income statement.

(Of course the value of the currency changes also, so technically you could still come out ahead by producing at a “loss.” But a loss on an income statement is still printed in red, even if buying power of the currency has actually increased.)

I agree that consumers don’t often bother with the math – when they want something they buy it. However, producers (and investors) will always do the math. I think the consumer side of this is often emphasized in these sorts of explanations just because it is more familiar to ordinary readers.

[Anonymous]

[quote]Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. [/quote]

Consumers putting off purchases is only one part of the dynamic of the “spiral.” Probably the bigger problem with deflation is that producers will also be hesitant to produce, or to invest in capacity to produce, or to innovate new products, etc.

Why manufacture a car if there is a risk that the finished product will cost less than the inputs? Hold on to the cash and there is less risk of operating loss on the income statement.

(Of course the value of the currency changes also, so technically you could still come out ahead by producing at a “loss.” But a loss on an income statement is still printed in red, even if buying power of the currency has actually increased.)

I agree that consumers don’t often bother with the math – when they want something they buy it. However, producers (and investors) will always do the math. I think the consumer side of this is often emphasized in these sorts of explanations just because it is more familiar to ordinary readers.

[Anonymous]

[quote]Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. [/quote]

Consumers putting off purchases is only one part of the dynamic of the “spiral.” Probably the bigger problem with deflation is that producers will also be hesitant to produce, or to invest in capacity to produce, or to innovate new products, etc.

Why manufacture a car if there is a risk that the finished product will cost less than the inputs? Hold on to the cash and there is less risk of operating loss on the income statement.

(Of course the value of the currency changes also, so technically you could still come out ahead by producing at a “loss.” But a loss on an income statement is still printed in red, even if buying power of the currency has actually increased.)

I agree that consumers don’t often bother with the math – when they want something they buy it. However, producers (and investors) will always do the math. I think the consumer side of this is often emphasized in these sorts of explanations just because it is more familiar to ordinary readers.

[Anonymous]

[quote]Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. [/quote]

Consumers putting off purchases is only one part of the dynamic of the “spiral.” Probably the bigger problem with deflation is that producers will also be hesitant to produce, or to invest in capacity to produce, or to innovate new products, etc.

Why manufacture a car if there is a risk that the finished product will cost less than the inputs? Hold on to the cash and there is less risk of operating loss on the income statement.

(Of course the value of the currency changes also, so technically you could still come out ahead by producing at a “loss.” But a loss on an income statement is still printed in red, even if buying power of the currency has actually increased.)

I agree that consumers don’t often bother with the math – when they want something they buy it. However, producers (and investors) will always do the math. I think the consumer side of this is often emphasized in these sorts of explanations just because it is more familiar to ordinary readers.

[Anonymous]

[quote]Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. [/quote]

Consumers putting off purchases is only one part of the dynamic of the “spiral.” Probably the bigger problem with deflation is that producers will also be hesitant to produce, or to invest in capacity to produce, or to innovate new products, etc.

Why manufacture a car if there is a risk that the finished product will cost less than the inputs? Hold on to the cash and there is less risk of operating loss on the income statement.

(Of course the value of the currency changes also, so technically you could still come out ahead by producing at a “loss.” But a loss on an income statement is still printed in red, even if buying power of the currency has actually increased.)

I agree that consumers don’t often bother with the math – when they want something they buy it. However, producers (and investors) will always do the math. I think the consumer side of this is often emphasized in these sorts of explanations just because it is more familiar to ordinary readers.

[CA renter]

[quote=Nor-LA-SD-guy]Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.[/quote]

An even better idea would be to foreclose on everyone who isn’t able/willing to pay their mortgages, let prices go back to normal (pre-bubble/2001 prices), and wipe out that debt for good.

Until we do this, it will never be fixed.

The only way to get housing prices back to peak is if the govt continually gives (not lends) new buyers more and more money with which to buy houses, OR…give everyone bonus-buck checks and destroy our currency.

[CA renter]

[quote=Nor-LA-SD-guy]Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.[/quote]

An even better idea would be to foreclose on everyone who isn’t able/willing to pay their mortgages, let prices go back to normal (pre-bubble/2001 prices), and wipe out that debt for good.

Until we do this, it will never be fixed.

The only way to get housing prices back to peak is if the govt continually gives (not lends) new buyers more and more money with which to buy houses, OR…give everyone bonus-buck checks and destroy our currency.

[CA renter]

[quote=Nor-LA-SD-guy]Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.[/quote]

An even better idea would be to foreclose on everyone who isn’t able/willing to pay their mortgages, let prices go back to normal (pre-bubble/2001 prices), and wipe out that debt for good.

Until we do this, it will never be fixed.

The only way to get housing prices back to peak is if the govt continually gives (not lends) new buyers more and more money with which to buy houses, OR…give everyone bonus-buck checks and destroy our currency.

[CA renter]

[quote=Nor-LA-SD-guy]Here is my two cents on this.

The vast wealth of our country is tied up in leveraged real estate, and most property purchased in the last decade is under water. There can be no positive economic resolution until this is dealt with,

People cannot move, cannot refinance, cannot relocate cannot invest in other assets or industries.

In essence the economy is stuck until home prices get back near peak .

No policy
No road construction
No Train track
No Loan Mod program

Will fix this.

Some day the Gov is going to figure that out.

This is of course just my thoughts.[/quote]

An even better idea would be to foreclose on everyone who isn’t able/willing to pay their mortgages, let prices go back to normal (pre-bubble/2001 prices), and wipe out that debt for good.

Until we do this, it will never be fixed.

The only way to get housing prices back to peak is if the govt continually gives (not lends) new buyers more and more money with which to buy houses, OR…give everyone bonus-buck checks and destroy our currency.

[Author]

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