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Pastimes : Ask Mohan about the Market
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To: Bearded One who wrote (7358)11/7/1997 3:09:00 PM
From: Mitch Blevins   of 18056
 
>>how do we combine inflation and deflation at the same time?<<

It's a new era.<-g->

I don't see a contradiction between the tight labor market (usually a sign of impending inflation) and a deflationary scenario. We have obviously not seen any price inflation in goods up to this point. And wage inflation has been relatively benign, except in certain fields. My theory is that we are on the cusp of a change. Overseas pressures have kept prices low, but businesses have still been profitable for the most part by making it up in volume. This is the cause for the labor demand. As AG would say, this is 'unsustainable' unless we start drawing upon the 10-year-old-and-under labor pool using Cathy Lee type sweatshops. Soon (it has already started) businesses will begin to see declining profits, and many of these workers will be thrown back with layoffs (this, too has already started).

It is a case where our natural business cycle has been disrupted by an outside force (overseas deflationary pressure), and our business profits trickling down are not creating enough new demand to sustain the upswing.

Analogy - the airplane pilot is pulling back on the yoke, but due to a strong tailwind, not enough lift is created. ----stall----

Sorry for rambling,
~Mitch
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