As I have said before - if you want to know what the economy is up to, look at hemlines. This woman and her husband are taking a nice stroll - they are not worried about deflation and neither should you. Here is an article (which I condensed) taken from an investor advisory newsletter. I'm posting it because I agree with what it says, although most economists don't. By Martin Hutchinson: "The U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) both fell in October. Those declines – combined with sharp downward spirals in worldwide stock and commodity prices – have caused many analysts, and even central bankers, to worry that we are on the brink of deflation.
Such concerns may be warranted in the short-term. But in the long run, deflation won’t be the challenge we face.
Thanks to an overly aggressive central bank, and more than $1.5 trillion in U.S. Treasury Department bailout programs – as well as other factors related to the ongoing global financial crisis – inflation will be the problem that ultimately bedevils us.
As long as oil and commodity prices drop, the PPI and CPI indices, which include oil and commodity prices, also will fall. Such a decline, however, does not constitute deflation; it is simply a one-time price adjustment. This is particularly true if most of the commodity-price declines are simply a reversal of excessive increases that had occurred over the previous year. That’s essentially what we’ve been seeing here. However, the deflation believers currently have an additional argument: With output in the United States plunging, and the stock market down around 50% from its October 2007 peak, there are very few pressures pushing prices upward. ... this, however, will not turn into deflation, unless the recession is exceptionally prolonged. Currently, output and employment are dropping very sharply, as is the stock market. This cannot continue for more than a few months – the latest being perhaps late spring of the New Year. As output declines, forces pushing it towards recovery will become stronger and equilibrium will appear." If you can buy 100,000 shares of any safe, conservative stock, do so, while the price is still low.
Such concerns may be warranted in the short-term. But in the long run, deflation won’t be the challenge we face.
Thanks to an overly aggressive central bank, and more than $1.5 trillion in U.S. Treasury Department bailout programs – as well as other factors related to the ongoing global financial crisis – inflation will be the problem that ultimately bedevils us.
As long as oil and commodity prices drop, the PPI and CPI indices, which include oil and commodity prices, also will fall. Such a decline, however, does not constitute deflation; it is simply a one-time price adjustment. This is particularly true if most of the commodity-price declines are simply a reversal of excessive increases that had occurred over the previous year. That’s essentially what we’ve been seeing here. However, the deflation believers currently have an additional argument: With output in the United States plunging, and the stock market down around 50% from its October 2007 peak, there are very few pressures pushing prices upward. ... this, however, will not turn into deflation, unless the recession is exceptionally prolonged. Currently, output and employment are dropping very sharply, as is the stock market. This cannot continue for more than a few months – the latest being perhaps late spring of the New Year. As output declines, forces pushing it towards recovery will become stronger and equilibrium will appear." If you can buy 100,000 shares of any safe, conservative stock, do so, while the price is still low.
Posts
