Value minded:
I did mention that I thought we might suffer the nasty after-effects of both, hence I have no quarrel with your list of things that have gone up in price. Of course one could deliver a similar list of items that have gone down in price, (particularly items that are manufactured) such as computers, autos (especially used autos), software programs, machine tools, any semi device you can think of, clothing, etc. And I think that you might agree that many manufacturers in North America have watched their pricing power evaporate (forcing them to either go bankrupt or move production offshore). If this isn't deflationary, then I don't know what is.
Add in the massive deflationary impact of the internet (which allows any individual to search the globe effortlessly for the lowest price) and it's difficult to believe that we won't be hurt badly by deflation. Just for starters, the loss of 3.0 million manufacturing jobs to offshore jurisdictions during the last three or four years is but one example of the deflationary pressures at work.
To my mind, what we are witnessing is a desperate Fed immersing the economy in massive waves of liquidity (debt money) in an attempt to keep deflation at bay. Unfortunately their actions have created huge imbalances in the system, buried the consumer in debt, and done very little to hold back the tide.
I left the most important consideration to last, that being the debt-burdened consumer. Once the real estate bubble pops, consumers will have no ability to continue their current level of purchasing (refinancing the homestead ends) which will put even greater pressure on prices of all kinds. Very few current investors have witnessed a "selling panic" hence they have difficulty imagining how such an event can smash prices. I think we will see just such panics in the near future (starting with real estate, then quickly spreading to the stock market).
Best, Earlie |
