Economy In a Period of Deflation?

We've all been hearing about the incredible amount of money being spent to keep banks afloat. But if you ignore the hysteria in the media, what is actually happening? Prices have fallen a great deal for just about everything. Is this a bad thing? My dollars now buy more stuff than they did before. I now have more money to save or pay down old debts. Is this not exactly what needed to happen?

I say this because for a number of years (particularly the last 3-4 years) everything had been going up in price in an unprecedented rate. Whether it was home prices, energy costs, food, etc.. It seems to me that all that is happening is that now the market is correcting itself from those severely inflated prices and things are coming down to their real value.

Now not everything is going to rosy for alot people. Because people began to start saving again, the demand for stuff has gone down and manufacturers have overproduced stock that they will have to sell at a lower price. Because there is less demand for some products, many people will lose their job. But on the other hand those that do have jobs will pay less for everything.

So my question is this a bad thing? Given that when people are forced to be resilient, they most often are. By that I mean the people that lose their jobs now will try to find better jobs or getting better training/education or even start their own business.

I think as long as inflation is kept in check, North America will benefit a great deal as more people leave jobs that could be easily done by robots and into new fields where jobs are easier and higher paying.

Your thoughts?

Originally posted by Cool Hand Luke
So my question is this a bad thing? Given that when people are forced to be resilient, they most often are. By that I mean the people that lose their jobs now will try to find better jobs or getting better training/education or even start their own business.

I think as long as inflation is kept in check, North America will benefit a great deal as more people leave jobs that could be easily done by robots and into new fields where jobs are easier and higher paying.
Your thoughts?

What better jobs exist for them to do?
How will they afford to pay for training?

the bad thing that could happen is the devaluation of the dollar as its purchasing power abroad weakens. This would create an inflationary situation much like they had in Zimbabwe recently.

Originally posted by rizla

What better jobs exist for them to do?
How will they afford to pay for training?

Given that your country the US has lifted certain bans on drilling oil, there will be a huge increase in high paying jobs in that field. For example, they recently discovered that North Dakota is sitting on an ocean of oil.

Even the auto industry is improving. Sure GM and Ford are in alot of trouble but look at Honda, Toyota, Mazda, BMW, Volkswagen, etc. are all building many new factories in North America and will continue to do so for the forseeable future. So there it is not a question of people losing their jobs, it's more of a question if they do lose their jobs, are they willing to move to get them.

Look at the new battery companies that have arisen due to the demand in Hybrids and strictly electric vehicles like the Tesla roadster. That trend seems to be on the up and up.

Even the health care industry where they are in need of assistants and data entry workers that require minimal training but offer good wages.

As far as starting their own businesses, look at the internet. The internet is the great equalizer in terms of opportunity. The only thing that limits the success of a person's internet business is the amount of time and effort he or she is willing to put into it.

I can give you countless examples of opportunities that people have to make money. But I will say, when looking from a distance, this period will be a rough transition for many people. But that does not mean that this transition, in the long run, will be bad. In fact I believe it will be quite good.

Originally posted by warrenb
the bad thing that could happen is the devaluation of the dollar as its purchasing power abroad weakens. This would create an inflationary situation much like they had in Zimbabwe recently.

Absolutely and that is something that I fear might happen. I am hopeful though that those in charge are fearful of printing too much money but they must be equally as fearful as not printing enough ie 1930s. Given the track record of both our countries ( Canada and the US) for the last 25 years inflation has been kept in check at around 3% in both our countries. I can only hope that they will be disciplined enough to keep it from straying to far from that number. Time will tell though if the decisions the FED and the Bank of Canada are making now will result in inflation or deflation.

I'm not sure what prices you see falling. I see retail items being sold at a huge discount, mostly because they are trying to unload a bunch of merchandise during the holidays so they aren't sitting on inventories.

I don't see prices of food going down at all; in fact, I see that most items have increased by 50% to 300%. Luxury and big ticket items may be down, but the necessities aren't. At least, not where I live.

I think the recession won't last as long as they keep saying it will. That is a big IF they stop printing so much money!

Every time I read the news it's something about money being printed and sent out either to a corporation or to countries or whatever.

I love spending money too, but when I spend money I get something that can be sold for equal or similar value. When the government spends money they don't always end up with something of value that can be sold for a profit. Which is why we should have natural resources backing each printed dollar but this obviously is no longer the case.

I think this shopping season will be the make or break for American economics. Either we will start to see the light at the end of the tunnel after Americans run out spending their last pennies on gifts, OR we will see no change at all. If we see no change at all then I will begin investing into Gold, or Euros.

The Chevy dealer down the road has $15,000 off MSRP for SUVs. If they were listed at $50K, that would be 30% deflation.

Gasoline (should be included in inflation) is down from $4.75 to $1.75. That's 63% deflation.

Homes are down 25% in the last year.

What else would you like to count?

reply to post by VelmaLu


The prices of mass produced goods can fall to incredible lows before the profit margin is whipped out.

Consider that the average car cost $1.3k in materials to construct and retails for over $30k
Source

12,000% profit in new a new vehicle
and they want a bailout...hmmm

Mass produced goods will continue to fall in price, however fresh produce, meaning foods and consumables, will rise in price as global stocks dwindle.

Originally posted by VelmaLu
I'm not sure what prices you see falling.

I don't see prices of food going down at all; in fact, I see that most items have increased by 50% to 300%. Luxury and big ticket items may be down, but the necessities aren't. At least, not where I live.

the essential like cases of beer were $11.99 now are $15.99
vegetable soup was .89 now $1.08
tomato soup was .59 now .79

the list goes on & on of increased $
A $30 cell phone connection was once about $35.15 now is $37.79 per month

watch... all the stuff blue-collar middle-class people use most are getting targeted for increases...why?... its all in the item called 'scale'

cool hand i'm NOT so sure they are willing and ready to devalue at any cost like ben b tried to get investors to believe (in order to maintain inflation expectations)

The World reserve currency is something that gives the U.S super powerstatus and i don't think they would flush that down the toilet (thru devaluation). Although it is a bit of a paradox in the sense that they must keep OPEC happy and a weaker dollar does = higher oil prices but also could threaten to weaken the economy so much that the export country's stop buying up treasury debt en masse and that would be bad for the economy. A war in IRAN could potentially create a oil supply gut that could cause oil prices to RISE VERY FAST (block stait of hormuz?) and keep OPEC happy , yet keep the dollar strong enough since this would be different than devaluation. Most country's in the past that have devalued have not had a currency that was the world reserve currency, and thus had less incentive to protect it. Unless of course the internation financiers are calling the shots in the U.S govt AND they have a more profitable fixed exchange rate system to create? .........studio


here's a SICK question .......would u support a unfair attack on IRAN if it would keep our economy out of depression and help save millions of american jobs........

[edit on 30-11-2008 by cpdaman]

[edit on 30-11-2008 by cpdaman]