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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: John Vosilla who wrote (151295)9/27/2008 5:06:17 PM
From: GraceZRead Replies (2) of 306849
 
We've gone through the later in many RE markets a good 18 months already in plunging asset values and local GDP drop in RE related activities.. Yet we are not officially in recession in large part because overall CPI is understated IMHO.

When RE prices fall due to a a severe credit contraction as we're seeing now, prices fall because there is a liquidation event. This isn't monetary deflation any more than a serious fall in the price of wheat would be during years of plenty.

Aside from the argument that the CPI is under or overstated, business downturns can be local in nature without a nationwide recession. What other business does FL have besides RE? In Maryland there is lots of pissing and moaning about RE price declines and the high price of gasoline as well but business here and the state's economy overall has been robust (unless, of course, you are talking to someone who hopes to be elected).

BTW, disinflation is usually defined as a falling rate of inflation, not a falling general price level. For instance we had over the period between the peak in the rate of inflation in 1981-82 and say 2003, a general trend down in the rate of inflation all the while the general price level still rose, just at a continuously lower rate. That was disinflation.

What grusum was asking about was a systemic deflation bias, where there is a general fall in prices and consequently an increase in the value of your money.

We've had plenty of instances where asset values plunged, credit slowed significantly or contracted and the GDP contracted, without ever exhibiting systemic monetary deflation since WWII. We've had inflationary recessions. We had what most describe as monetary deflation during the Great Depression because one third of the money supply went poof in less than a year and that had the effect that the GDP contracted by the same amount.
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