Great Recession at 30 months
Financial Armageddon linked to this article, Great Recession at 30 months.
I have stated that I am in the deflation camp, and I remain in the deflation camp, although I do keep my eyes open for signs that it could turn around. Once the massive debt overhang is cleared and deleverage has finished, then the stage is set that you can see a return to an expanding money supply, however, I think that it will take a few years yet for the current economic problems to work themselves out. And it remains to be seen how the economic problems work themselves out with a massive aging population. Japan comes to mind as an economy to look at that had massive debt deflation and an aging population to contend with, only they were dealing with it in a much stronger world economy. I don't see how Japan's strategies work for everyone when everyone needs them to work at the same time...
The data from the linked survey is pretty strong in showing the degree that household's have suffered financial loss due to employment issues. More then half have suffered some kind of employment set back in the past 2.5 years. More then half say they have cut back on their spending. About half say they are in worse financial shape then before the recession started. More then half the workers in their 50s have plans to delay retirement because of economic changes to their finances from the recession.
Now, I am amazed that people believe their home values will return in 3-5 years. I suppose it depends to some degree what you expect it to return to and where you live. When I bought my home in 2003 I remember at the time thinking it was never going to increase in value and just remain flat for years as it was so expensive. However, the housing bubble hit with a gale force and I sold my home for 60% more then it was bought for in 2008, and I did not sell at the absolute top and home prices in Vancouver have not yet declined. Vancouver's housing bubble is unique in this economy because of the Olympics. There has been a rash of buying from wealthy mainland China, and BC's population has increased faster then anywhere else in Canada. But, with average home prices something like 8-9 times average household income, it is not sustainable and there will be a correction at some point. They did dip a bit prior to the foreign buying.
I am still expecting a good part of that gain to disappear. From the start I have said 2012 is the earliest to look at the Vancouver housing market, but with the Olympics, that may still be early. After Expo 86 Vancouver saw home prices dramatically increase each year until 1993. But home prices were such that it wasn't just the wealthy that could afford to buy here. Locals could afford to buy.
Anyway, the data showing the reduced spending and reduced employment simply suggests there will be some deflation.
Also, as people reduce spending, business has to become more competitive and profits have to be squeezed. And that simply does not allow for wage increases, or even job security.