Excellent post Frank!!
My only disagreement is in the cause of deflation being too few "tokens" available.
Taking a look at two prime examples such as Japan and China, we see that there is no shortage of "tokens" as both nations have incredible cash reserves and some of the highest savings rates in the world as a percentage of income.
The real source of deflation, I opine, is that destruction of consumer confidence, something entirely psychological. People are either afraid for jobs, or afraid that the items they would like to have will only decrease in value.
Some of the reports coming out of China recently show state owned industries in a price cutting war wherein prices for things like large color TVs are selling for $150, and shirts selling for $2.50.
Now the events that have led to this price slashing is mainly rooted in the elimination or indifference to the concept of profit and its natural ability to contain excess production of more goods than can be absorbed by the market place.
With this indiffence to profitability, comes the realization that it can't continue forever and that certain industries will need to close their operations and lay off workers. This then impacts consumer confidence as workers (consumers) squirrel away every last penny possible for the eventuality of being laid off, downsized, or retrained for a lower paying position.
How to solve this problem?? That a difficult question. The US devalued the dollar 68% in the 1930's in order to spur domestic consumption and create a sense of "wealth" from higher wages, as well as the psychological effect of stating that either one must spend some of those savings or face further diminishment of purchasing power.
That's what I believe Japan and China will have to do, despite all indications of their currency growing stronger. Exporting their way out of depression is no answer, because no one truly believes the US can absorb their excess production for an excessive period.
Regards,
Ron |
