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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Robert Douglas who wrote (406)	8/14/1998 3:04:00 PM
From: Chip McVickar	Read Replies (1) of 3536

Robert, Don't have a subscription either or another link. Essentially he said and I quote: "Today measured inflation rates are slightly positive, but some of our major price indexes have had months or even sequences of months when they indicated that prices were failing. Energy prices have taken a particularly sharp drop. If health care...[with sharply rising costs]...is subtracted from these price indexes and the quality corrections endorsed by Grenspan are incorporated into the measurements, the standard inflation indexes would show modest price declines in the past few years." "While generalized price declines have not been seen since the 1930s, the smell of deflation is now strong enough to make it worth thinking about how standard economic operating procedures change when selling prices start to fall." Here he writes about prices pressures in various industries, Auto, micro electronics, etc... "The economic melt down in Asia is going increase these downward pressures substantially." ... Us firms will have to drop prices or watch there market share decline substantially."...."Profit expectations will be revised downward."..."Since many families are using their new stock market wealth to finance investments in larger houses, a sharp correction in the stock market would lead to equally sharp declines in real estate prices."...Put falling industrial prices together with with falling stock market and real estate prices and one has deflation." "Deflation is not enevitable -- Japan may yet get its act together -- but its probability is growing daily."...here he lanches into a long discussion on debt and its relationship to a dollars value and being out of debt in deflationary times as the best position..."Since the value of money is going up while the value of other assets is going down, holding cash becomes the smartest investment."...Here he writes about price pressures and slowing consumer confidence and pressures on wages...government spending cuts to eliminate debt...difficulty of nations to sustain positive growth rates... Thurow concludes with this... "In the Great Depression of the 30s, a vicious cycle emerged as falling prices led to falling GDPs and falling GDPs led to falling prices. Put simpily, in the end, a deflation rate of 10 percent is much more painful than an inflation rate of 10 percent." Hope this helps Chip

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