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Deflation - Rosey Answer

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August 01, 2010 – Comments (3)

A couple weeks ago I posted that I sent Rosendahl a question about the monetary base expanding.  Anyway, he sent me a link as an answer to the question

I am still at Daring Lake and I will look back closer when I get home in a few days.  The expansion of the monetary base did not move me from the deflation camp, but more calmed my fears about an entire collapse of the banking system, try to get your money back when so many banks gave it to people with no capacity to repay it...  If there is nothing left no amount of self righteousness will enable banks to give you back your deposits...  As near as I can figure the doubling of the monetary base went to putting liquidity back into banks.

This one is a few days old, but from big picture, we are in deflation right now.

 

3 Comments – Post Your Own

#1) On August 01, 2010 at 2:34 PM, ChrisGraley (29.72) wrote:

Excellent article and very accurate, the question is, "Are we stupid enough to try to print ourselves out of it?"

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#2) On August 02, 2010 at 1:26 AM, FleaBagger (28.28) wrote:

Where is the evidence that we are in deflation right now? The link you provide is completely void of any evidence. If there's deflation, why aren't my prices going down? We have vast payroll reductions, why no broad consumer price reductions?

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#3) On August 03, 2010 at 6:41 AM, dwot (42.49) wrote:

FleaBagger, deflation is about the money supply, which is declining due to credit contraction.  Usually prices move with the money supply, but not always.  Look at metal prices, copper was around $1/pound somewhere in the early 2000s and a massive price increase to over $4/pound.  A lot of housing bubbled, all of that was due to inflation from credit expansion.  In the case of housing, credit expansion was much larger then it should have ever gotten because of the lending to those who could never repay the money.  The increase in the money supply through credit expansion hit the economy unevenly, with housing and primary materials, like metals, hit the hardest.

I am not seeing price declines in things like food and gas, but inflation/deflation does not hit all goods and services equally.  But I do tend to think as cash strapped consumers look for bargains business will find less price control and more competition and will be operating on lower profit margins.  I think we are already seeing some of that in larger purchases, like cars and appliances. 

 

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