Everything got too damned high my family is in the steel industry and the steel prices were just going out of sight and in july thur sepetbmer we had probelm getting supplies even i hope this is all just correction but who knows

and the trouble is the MSM, as usual. In attempts to continue to pile-on the hits to Bush on his way out, and to pre-load and make under-whelming expectations for the Obama administration on the way in, they may talk us into the problem. They sure helped deliver us to the point of “official” recession rather than “economic slowdown,” in order to help push the Democrat agenda. We don’t need more Self-fulfilling prophecies!

Following a couple years of inflation being a bit more than it would have been, not given the CRA/Mortgage-meltdown and the 30+ year anti-Drilling policies that finally caught up with us causing the Slowdown to be much more than it would have been, I suspect we are just currently reaping the benefit of some good deals (partially thankful to desperate/panicking retailers).

Though, I am surprised that Gas/Gallon did get back under $2.50 (Natl. Average). If the Democrats had complete control already they would have made sure they stayed up (and will cause it to climb soon).

But again… a MSM that has been chicken-littling the economy have helped bring us here. Soon, Obama officially in place, you know darn well they’ll immediately play up anything/everything Dem’s do as “helping” and “things are good” (land of Milk and Honey) again.

Hey Blackhedd!

You know, I would really like for you to write about the current state of the $700 Billion Crap Sandwich, or what you called TARP.

Until then, I will take the oppiste postion you take. You think Deflation is bad? I now think it’s good!

This is not a rhetorical question. Taking myself as representative of the relevant group, what casual observers of the economy have learned about economics in the past few months is this: when housing prices go up, it’s bad; when housing prices come down, it’s bad; when gas prices go up, it’s bad; when gas prices come down, it’s bad; when interest rates go up, it’s bad; when interest rates come down, it’s bad; in fact, as we learn from this post, when prices in general go up, it’s bad; and when prices in general come down, it’s bad. Why not just describe what would constitute good economic news and we’ll all stipulate that anything other than the described situation is really bad.

a product of the sudden drop in costs due to rapid fuel cost declines? Although some of it is probably due to lower demand and greater competition for a declining market.

Even though energy prices are not in the core data, they nevertheless have a bearing on nearly every other cost of goods sold.

How does China fit into this? It would be tempting to do something that would screw China out of money they’ve lent us if it could be done without wrecking our economy. (On a related note, if we are always supposed to forgive loans to “poor” countries who “can’t afford to repay”, and if we’re the biggest debtor nation around…) Perhaps a better version of the question is what can we do if anything to get some relief on our debts? Of course if Obama goes on a spending spree I guess we’ll just need to crank up even more borrowing.

Will Obama be tempted to just starting printing up more money? His MO seems to be to say or do whatever it takes to produce some short-term result that will benefit him. If he can make something look good in the short term (oh, like say around 2011 when it just so happens he’ll be running for re-election), what would that do to us long term? Do you think that scenario is at all likely?

And I think it sums up pretty well the state that we’re in (or just beginning). I’m an architect and our firm just effectively cut wages, in that no increase in salary in 2009, plus the 401K company match has been suspended indefinitely. Same goes for my wife’s company, a 10% paycut effective 12/1 plus a suspension of the company 401K match. Wages seem to already be responding to these deflationary pressures.

What’s scary about this economic cycle is that there seems to be no obvious way to do what’s been done in the past without significant long term risk, and that is spend our way out of this. Individuals, local, state and the federal government are all tapped out. (I guess the feds are never tapped out since they can just fire up the presses…) but you get my point. Households hold $14T in consumer debt. Virginia where I live is facing a $2B shortfall. The federal government is over $10T in the hole and facing $60T in underfunded SS, Medicare and Medicaid obligations so at every level, there seems to be way too much debt burden.

I know in our household we’re in better shape than most we know (I hope), but we’re spending significantly less per month than we have in years, and we’re at or close to the peak or our earning potential (I think). We’re in the need vs. want mindset when it comes to spending and everyone we know is doing the same.

The consumer has been drunk on easy money and credit for the past 15 years. Everyone has Ipods, flat screen TVs, cars, houses that are too big for their needs, etc….How many of these things do we need? But without the consumer driving demand and sustaining prices, then it seems to this lay person that deflation is the logical result of this excess.

What’s even more concerning to me in that our firm does almost 100% taxpayer driven work is when in 2009 will the taxpayer look at their property taxes and wonder why their tax bill hasn’t gone down when the price of their home is 30% less than it was a year ago. I think it could be very dangerous on many levels if this happens.

Needless to say, I’m very bearish on our future at this point. Not only did we just elect a Marxist as president, but his economic plans, and globalist notions would simply be devestating to our country.

I was wondering when somebody would comment on that report. Figures it would happen at Redstate, LOL..

I share your concern. I was wondering when it would happen…

You’ve heard that statement about history repeating itself??

Oh, and go back further than Japan…

You made a complex subject clear.

One small quibble:

They [companies] will do everything they can to avoid wage reductions and layoffs.

True in the narrow sense, but potentially misleading. Companies will avoid “wage” reductions, but will almost certainly find ways to reduce payments to employees. (E.g., your year-end bonus will likely be smaller). Companies are also likely to avoid layoffs, but will find ways to reduce effective headcount. (E.g., won’t hire seasonal help to the past levels of last season).

What if some (or much) of the current slowdown in credit formation is due to weak demand for credit?

Many people have made the case that the global economy will recover quickly from the current slump, because as soon as… well, something happens to make credit easier to get, then pent-up business activity will come roaring back. But if demand for credit is impaired as well as supply, the case for a quick recovery becomes much weaker.

If we pretended America was a family, and we took the value of everything that we had, and subtracted everything that we owed, would the figure be positive or negative?

I firmly believe it would be negative, in a big way, and everyone knows it. We have built an economy based on consumerism, fueled by debt. On a micro level, the people with good credit don’t want or need it, the people with bad credit desperately want it but can’t get it. Neither group is buying, or will buy, in the foreseeable future.

This is not a dip in a cycle. It is a sea change in the way America views debt and consumption. It is a correction of epic proportions - a good one, in my opinion - but there will be plenty of pain to bear for a long, long while. The bailout(s) are only prolonging the inevitable.

I am thinking fourth quarter 2009 - first quarter 2010 at the earliest.

My workers and I haven’t had a raise in 2 years, so with inflation, my money was worth less and now with the rate deflating, doesn’t that make my salary worth a lil more than the past months?

Deflation is real and it is here. We have ad a >40% real stock market decline, a >20% real housing price decline and now a >60% barrel of oil price decline. The collapsing will continue, there is little room for further interest rate declines, the Fed will have to monetize a lot of debt(print money). The government is going to continue its bailout policies, and housing market rescue ideas and probably, if history is any judge, make the problem worse.

I’d really like a new car, and had been planning to buy one this fall. But I absolutely hate debt with a passion, so I was planning on paying cash for it. With the recent economic troubles I decided to hold off buying it until spring, when I have a few more months of reserve in the bank, assuming no disasters happen between now and then.

So I guess I’m part of the problem. But if you multiply the same decision I made by thousands or millions of people or small businesses, I could definitely see deflation happening. Is this a case of market failure? Or is this a case where the market, coming to the correct decision as a whole, comes to one that happens to be the least bad?

I heard this on the Kudlow show but I cant remember who said it, I think the guy from Texas.

Anyways the proposal was that for the next 5 years any money that you put into the market would be taxed at 0%. That is the money you make on the money invested in the next 5 years would be taxed at 0% when you take it out.

This I think would address the issue you raise with regards to a diminished demand for credit, as we would have put a huge incentive on the table for people to seek credit again. I dont know if this proposal addresses the banks desire to avoid risk, however.

I think its a good idea because there is money on the sidelines waiting,waiting,waiting. Now im not rich but I too have been waiting for a moment to put my money into the market. I havent been able to make a decision because of the governments repeated intervention. I just dont know what crazyness the government will get into. I think if the government said, out loud, that they were not going to get involved, or if they are, give a concrete, carved in stone plan, this would also help calm nerves and invite investment.

That is the best news I have heard today. Deflation encourages frugality, savings, and more efficient management of resources. It is also a boon to those of us that already live with in our means.

I’ve seen this question here before but haven’t seen any of your responses - sorry if you have posted them before. But how do those of you in economics explain a viable dollar in the short and long term?

Looking at the money supply changes - BEFORE Obama and Congress team up, I remain confused and quite concerned.

but in a time of record personal debt and seemingly endless upside down mortgages I have a hard time seeing a decrease in credit demand as a bad thing. Sure extended deflation is a problem but breaking our addiction to credit we can’t afford seems a prudent and much needed thing.

Gas prices have declined for two months straight, and are down about 50% nationally. There’s no reason not to believe that the price decline is a result of a decline in transport costs rather than a lack of money floating around.

If this keeps up beyond just reflecting the decrease in gas prices then there will be cause for concern. As it stands, with a trillion dollars being spent by congress and the Fed handing out loans like candy on Halloween, I wouldn’t worry too much about the prospect of deflation.

There was $56 Trillion in SIV’s MBS, Credit defaults etc floating around the world. That paper is pretty much worthless.

the FEd and the US gov have inflated the money supply by about $5 trillion. That still leaves $51 Trillion in deflationary pressure in the world today. With China and the EU that might drop to $48-$49 Trillion.

This is why you are seeing deflation. We must deflate about $48 Trillion or raise $48 Trillion in capital to compensate.

The gov can not do it. There are only two solutions to the problem. Allow the deflation to happen. It will be painful but it will be for the best in the end. Or inlfate the money supply. this will cause massive HYPERINFLATION. this was the approach Zimbabwe took. I don’t know about you but I would rather not have to pay $1 billion for a loaf of bread.

The best thing to happen is deflation. My advice is get out of debt. If you have no debt deflation is your best friend. Your cash is worth more. Yuo can buy more assets with less cash. Deflation can be great for debtless societies.

I would imagine that the gov thinking they can “fix” this will simple inflate the money supply. This will cause massive inflation.

prices such as we saw in October are the opposite of good news. As francis points out, deflation (rather than decreases in price related to drop in oil/transportation costs)is a real possibility.

For a description of what deflation means to our economy I recommend the recent book:

“The Forgotten Man: A New History of the Great Depression” by Amity Schlaes (2007)

Following the Stock Market crash of 1929, Hoover and then Roosevelt turned a recession into a decade-long Depression by attacking what they thought were the problems, inflation and unemployment (which are quickly reflected at the voting booth). As it turned out, tightening money and trying to keep wages and employment up were exactly the wrong thing to do because deflation — the shortage of money in the economy — caused the economy to shrink dramatically. Hoover raised taxes and instituted punishing tariffs, while FDR tinkered with the gold standard and experimented wildly with socialism and government spending.( The Nobama administration appears poised to bring us the worst of both Hoover and FDR!)

What this meant for the average American 1n the 1930s– the “Forgotten Man” — is that the horizons closed in on investing, exanding, creating new business, and new building — for many communities the simple absence of money — not capital, but actual money, meant that the simplest transactions were impossible. Communities issued their own scrip and people resorted to barter.

But our country and its economy is dfferent now! you are thinking. yes, it is. We would face different scarcities. Schlaes points out that the most expensive items for Americans in the 1920s before the Depression were food and clothing. And indeed during the Depression (attested to by some of the great novels, films, photos and songs of the period) hunger and lack of clothing were acute and constant.

(This reminds me of our recent Presidential election, in which John Edwards, trying to depict poverty in his “Two Americas” campaign, always invoked the image of a little girl who had no winter coat. This caused puzzlement and derision, since clothing, as well as food, is now cheap and plentiful. Edwards obviously cast back to family stories about the Depession, in which clothes and shoes did indeed wear out and could not be easily replaced. Today, a child’s coat at Walmart or Target is cheaper than a movie ticket — the opposite of the days of the Depression, where movies cost 10 or 15 cents but a coat would cost ten times that amount).

What are our big costs today? Health and child care, higher education, transportation….so our Obama Depression will feature fat poor untrained people living near where they work at low-wage jobs (if they have jobs at all. People will be much less healthy than they are now because of the cheap food and little health care, so they will reverse mortality rates and die sooner in their lives…and that’s the upside.

read all the remaining comment thread (got halfway through). My comment is simply this.

It is extremely important that the tiniest decrease in compensation causes an incommenserately large decrease in discretionary spending.

I think that the itsy bit of price deflation is disregarded as people see their earnings narrow (not to mention asset deflation, threats of job loss, etc.).

Can someone comment on whether over-consumption and easy credit caused this? We have been hearing for years if not decades about negative savings and credit card debt. Is the panic the medicine that we must go through because people simply refuse to live within their means?

This something for nothing (handouts) or for no money down, pay later, got us here IMHO.

I drive an 18 year old car, my house is paid for and I have 0 debt. That’s right you heard me, zero. All of my investments are in large domestic corporatations because I never could understand debt equities and I have done a lot of studying, believe me.

It’s not that I think usury is evil so much as that I want to always be in command of my destiny. And here I am living in the word’s largest debtor nation. Roost, meet chickens?

Thank you Blackhead and the rest of y’all. Politics are one thing, but economics are very personal, indeed.

When we explain why laborers should be content with their wages, we argue that corporate health and higher imports cause prices to go down, benefitting them. If we now say deflation is bad, aren’t we really saying that letting laborers benefit is bad? Let’s not drive America even more towards wealth redistribution.

Of course over-deflation is bad, just as over-inflation is bad. Wild price variations are inconvenient and discourage business plans. But I see no real evidence of this situation; it strikes me as an improvement over the radical fall of the dollar in recent history.

Deflation is bad for borrowers. But that also means that investors must offer better terms to those with good investment ideas. (Lenders need not hesitate because of deflation. Every dollar lent and returned gives both interest and deflationary gains.) Since the idea-creators are more rare in America, and more in need of reward, this is a net positive for the economy.

(You can see the problems of too much ill-invested capital in our stock market. Are the current wild fluctuations symptomatic of people who’ve thoughtfully chosen business ventures over the long term? No, they show we’re a nation of speculators, because we can’t figure out anything better to do with the cash. Without a solid reference, any ripple that jeopardizes short-term gain might become a tsunami.)

Yes, it is harder to magically create wealth with financial derivatives. But I would hope the housing bubble crash would teach us that such wealth can magically disappear just as easily. The high prices such inflation creates aren’t particularly helpful either. Look at the ridiculous price of houses over the last five years.

“The cushion in the system which mitigates that possibility is the huge amount of cash currently being held on the balance sheets of large business corporations. They will do everything they can to avoid wage reductions and layoffs.”

I’ve recently quit my job at Hewlett Packard for a smaller company. My experience was far different.

In good times they were swinging the ax every which way taking out good and bad folks. I fear what will happen when they actually lose money.