“There is much lower-than-expected inflation showing up in too many places in the world to dismiss it as transitory,” said Allen Sinai, chief executive officer at consultant Decision Economics Inc. in New York.
DYI Comments: Apparently the two authors of this article need additional schooling or have been so co-opted by our central bank they believe this nonsense on a whole sale basis. Let's take on the second portion regarding demand drying up. It is true consumers will slow up their purchases as they anticipate lower prices but they will not freeze up their spending. They may hold onto cars a year or two longer anticipating the better deal but they will not continue (or attempt to) drive their vehicles as they become a maintenance nightmare. So it's off to the dealership to purchase a new (or newer used car) at a lower price. Or clothing for example, that shirt or blouse will possibly be worn a little longer but as a 1st world nation will we be seen as hobo's as depicted in the 1930's? Hardly.
While declining prices can be good news for consumers, disinflation makes it harder for borrowers to pay off debts and businesses to boost profits. The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up.
Retiree's on a fix income would receive a boost in purchasing power as their dollars stretch further. Inflation even at a low rate of 2% is nefarious to the elderly tarnishing their golden years with a ever decreasing standard of living.
The computer industry has thrived in a chronic state of deflation with ownership rates soaring and computing power increasing at almost at an exponential rate. This industry has not only survived in deflation; it has thrived.
Now to the 1st part regarding debts. Is it harder to pay off in deflation. You bet it is. So what? Debt for the most part is hazardous to your financial health. All it does is allow folks to live beyond their means temporarily and when they stop borrowing in order to pay off the debt a reduction in living standard is required. When it comes to basic consumption its a wash. When the hubris is allowed to run rampant a debt bubble will form and when it bursts a massive downturn will occur.
After the Civil War the industrial revolution was in full swing with chronic deflation and yet unquestionably the standard of living improved for the masses. Only when the Federal Reserve was created in 1913 and bankers gained control of the money supply did inflation gain a solid foothold. Creating far more booms and busts than ever before.
Deflation is a good thing which is simply part of the process of a more efficient(technology) economy only government intervention (wars, central bank money printing etc.) creates inflation.
DYI
No comments:
Post a Comment