Since when do declines in prices result in less buying? I know that when there is lower prices at the food store I buy more even if I don't need it. That's evidence of inflation psychology. I keep looking at that CPI. Can't find a time when it was negative. Oh, was it '83?, '93? whatever. It didn't last long, maybe 1 month. Except for post panic periods which were brief, in the last 200 years there hasn't hardly been any reduction in the general price level. The '30s are not much of an exception because the cost to produce doesn't fall regardless of whether producers are willing to produce.
I couldn't disagree more about the world being anywhere near the circumstances of '29. Economic stability here or abroad is a matter of inflation. If you have no inflation or deflation, you have good economic environment. If you have some inflation, that can work too, but some has never been contained to some. It always evolves to more. The only conceivable circumstance where that could arise is if the entire world becomes unionized. I believe in the early 21st century, that will be what busts the current prosperity, not FED creating monetary inflation during the next several years. That creation solves itself because FED would raise rates even if it sent the stock market over the cliff. Considerations like those are not that significant though they may cause ABX to double.
It's that worldwide monopoly unionization that really busts everyone and sends us into a true rapid deflation. The deflation would be caused by the world CBs pushing rates up to bust union hegemony, after nasty inflation knocks capital formation into the Stone Age. You can't stop the people from doing what they will and they will will the creation of union to steal back from the capitalist pigs what they will claim has been stolen from them. This is all way down stream and not relevant for current investment horizons. In fact, the unavoidable extension of current prosperity will be the setup that the bad times need to get a proper launch. It is a prosperity leveraged by low commodity prices and rising supply of cheap labor. |
