For your entertainment --- What is deflation like?
Year 2005.
President Bush just won the re-election, thanks to the land-sliding victory in Iraq. And now Bush begins to beat the drum on Iran.
Wall street has gone from heaven to bloodbath, to desperation, to absolute silence. DOW has been hovering around 3000 for multi-years, and the once mighty NASDAQ is stuck in the narrow range of 200 to 300. Intel, Cisco and Microsoft are too ashamed to be traded in NASDAQ and moved to NYSE. Trading volume on both NYSE and NASDAQ has contract to an average of less than a hundred millions. Any person who intends to open a brokerage account is required to watch a short video that shows how Henry Blodget was touting an internet company InfoSpace while secretly referring to it as a “piece of junk”. CNBC has become a celebrity channel with a few so-called genius traders showing stock charts from time to time. Pretty much they are the only active participants in the stock market.
Gasoline is dirty cheap. Now that Iraq is pumping oil as US wishes, Saudi Arabia’s role becomes significantly less important, and they are more cooperative than before. Around $5 a barrel, crude oil is at all-time low, and it brings down the price of all consumer goods. Unemployment is still at around 6%, mostly because many people have quit the work force, either giving up the job market, or because single-income is enough for the whole family, thanks to the continuous falling price, from egg to orange juice, from automobile to house.
80% of banks throughout the country have disappeared. Banks stopped paying interest on any account a year ago. All they are left to do is servicing checks. People need to pay fees to open checking accounts. Therefore cash transactions increased considerably. Not only 0% interest loan on automobile becomes common practice, a few large builders begin to offer 0% interest mortgage on new house purchases as well. This is taking a toll on other mortgage lenders, because they have to charge some interest, albeit very low, in order to stay in business. With this kind of almost 0% interest environment, record 90% American fulfilled their American dreams. Even though the average price of house decreased 20% from its peak, it still preserves value much better than other assets.
Technology is advancing at its due pace and competition is fierce. Intel is still ushering out ever-faster chips and AMD is a past name. Cisco entered storage business long time ago and eventually brought EMC to its knee. Starting this year, Cisco declares war on struggling software giant Microsoft by offering its own operating systems that not only work on chips, but on routers too. This technology advancing pushes productivity to an unthinkable high level even though the total US workforce has been declining, and helps to maintain the downward pressure on price index.
This month, Willow Bank, a California homeowner received a letter from his mortgage company:
Dear Willow Bank,
I am pleased to inform you that you can now pay your mortgage payment quarterly without any increase in interest charge. All you need to do is paying three times of your current mortgage payment at the end of every March, June, September and December.
We are doing this to cut our management cost. Given the current financial environment, there is not much point to get cash inflow early. And this also gives a chance to our customers some better use of cash ... |
