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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (9460)	7/18/2004 6:45:43 PM
From: glenn_a	Respond to of 116555

Mish or anyone. Regarding the whole Inflation/Deflation thing, mish you stated: (increase in wages < increase in inflation) + record consumer debt = deflation (IMHO) Sometimes it seems to me that understanding things in terms of Inflation or Deflation (not saying you do, but more that I do actually) seems almost 2-dimensional in a world that is more n-dimensional. So I'm going to think out loud here, and would appreciate some feedback. Monetary categories of Value - effects of a Pricing Mechanism So I'm figuring that Money places a "value" on goods and services in our economy. But these "goods and services" can cover a number of different activities, and from different perspectives. So, for instance, money attributes value to: 1 - Work or productive activity - let's call this "Earnings power" 2 - The "cost" of money - let's call this "Borrowing power" 3 - The "liquid" value of existing assets - let's call this "Wealth" (The above three items concern the ability of individuals, firms, and governments to "acquire" money - either by earning it, borrowing it, or selling existing assets at a given market price.) 4 - The "value" of the monetary medium itself to acquire goods and services – let’s call this “Purchasing power” The inflation/deflation debate to my mind (and I’m thinking out loud here), really concerns only item #4. That is: i) Price Inflation = less goods for one’s existing $ ii) Price Deflation = more goods for one’s existing $ But what if say, you had relative price stability – which is to say that your existing $ maintained its ability to purchase a given amount (or basket) of goods and services. However, at the same time, items 1-3 above (that is, your Earnings power, Borrowing power, and Wealth) all declined, perhaps dramatically. In this situation, you could still have relative price stability, but have much less ability to acquire the $ to maintain one’s existing lifestyle. In this sense, I suppose, what I am saying is that one, and one’s society, could experience significant wealth deflation (in the form of a decline in Earnings power, Borrowing Power, & Wealth), while at the same time there could be relative price stability. Perhaps then, it is best to distinguish between important different categories of Inflation/Deflation (or value): 1 – Earnings power 2 – Borrowing power 3 – Wealth 4 – Price level And, if your borrowing power decreased (i.e. cost of money inflation), and your earnings power decreased (i.e. Value of Labor inflation), it is still possible that your Liquid Wealth could increase (i.e. Asset Inflation), while the overall price level remained stable (i.e. relatively little inflation or deflation). And, you can alter any of the above variables for the categories above to achieve some different permutation or combination. OK, if I go any further I think I could get myself into intellectual trouble. But am I making any sense here? Daring to be confused, %>) Glenn