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To: Maurice Winn who wrote (11430)	6/12/1998 5:40:00 AM
From: Maurice Winn	Read Replies (1) \| Respond to of 152472

...and all those derivatives too. What happens when they get put through the wringer? Debt stacked on debt, future geared and mortgaged with reverse spin dollar inversion, exchange future proofed and multiply-jargoned. Mqurice

To: Maurice Winn who wrote (11430)	6/12/1998 6:34:00 PM
From: Clarksterh	Respond to of 152472

Maurice - I don't accept that deflation automatically damages corporate earnings. There has been huge computer deflation in the context of improved hardware design and manufacturing. That's good and a driving force for the new paradigm. The real terror of deflation is positive feedback. When deflation is great enough it becomes necessary to lay off workers or cut wages. This, in combination with an expectation of future cheaper products, causes workers to avoid buying products. Which causes a further price reduction by the manufacturers as they try to ship more product. ... However it is possible to have deflation without the positive feedback, and there are several ways that this can happen: 1) Productivity gains outpace the deflation, so workers average wages do not decrease. 2) Only a small fraction of the economy, operating under a given currency, is experiencing deflation. The injection of capital from other areas interrupts the positive feedback. PC's fall into both categories, and so have not caused any major dislocations. All JMO and vague recollections of college economics. Clark PS - Even benign deflation (i.e. with productivity gains outpacing deflation) may have a long term negative impact on an economy because a lot of the regulating mechanisms of the economy just don't operate with deflation. The classic example, alluded to by Gregg, is that banks, in theory, should pay people to borrow in a deflationary environment. Our system just can't handle it. (another example is that workers in an inefficient industry may accept a 3% raise in a 5% inflation environment and gradually leave for better paying jobs, but they are much more 'sticky' when asked to accept a 3% pay cut or be laid off.) PPS Good article by Bill Gates in the latest Economist. (Also a brief summary of the G*, Iridium and ICO ventures.)