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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Joan Osland Graffius who wrote (71440)2/24/2001 12:21:25 PM
From: BigBull  Read Replies (2) of 436258
 
What you say is, in part, true for products with fairly inelastic demand such as food. However, the US economy is not comprised entirely of the food industry. I strongly suspect that the recent huge energy bills incurred by consumers this winter will put a serious crimp in future spending plans. Now, if consumers are forced to pay high prices for essential items during a period of mounting layoffs, high levels of debt service, stagnant wages, and declining equity prices then imo their discretionary income dries up to next to nil.

Therefore, while food prices may hold up and OPEC may suicidally attempt to keep prices high, the prices of everything else may plummet do to lack of demand. Further, I do not expect the services sector to be immune either. This could very well be one horrendous travel season for the tourist industry, especially if energy prices stay high. The financial services industry is already feeling the pain with accelerating bad loans and layoffs.

The one thing that inflation bulls simply refuse to deal with is the current negative savings rate of American consumers. Folks act like that simply doesn't exist. But it can and will strike at the very heart of discrentionary spending. Sometimes the jig is up, the musical chairs can't be moved around any more and the piper has to be paid. But it seems only a few fringy types like me seem to believe this.

I think what you seem to be arguing is that the business cycle has been repealed and deflation can't happen because of the food business? Ok, call me from another planet, but there is now no pricing power in huge sectors of our economy - cars and computers. So what the food industry giveth the manufacturing industry taketh away.
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