Deflation Is Crushing QE Right Now
- Thread starter OddTrader
- Start date
Ain't THAT the truth.
Deflation should actually be the natural result of a good economy with high productivity and economies of scale. Examples of good deflation: price of computers, price of cells phones and telecom. You get more for less.
Here is why deflation is not liked by some: because landlords rent collectors could be one of the losers in it or not gain from it as they do from inflation.
Deflation could make the little-saver-hard worker richer, and the landlord who sits on his ASSet less rich or may even run in cashflow problems to pay his loans. The landlord has then two forces working against him: the lower rents and lower property prices. He becomes like the man in a bear market long dividend paying stocks who keep lowering their dividends while the price fall. His equity goes down, but at least he does not have a broker who liquidates his position if a margin call is not met.
So deflation has pluses for some, and minuses for others.
Here is why deflation is not liked by some: because landlords rent collectors could be one of the losers in it or not gain from it as they do from inflation.
Deflation could make the little-saver-hard worker richer, and the landlord who sits on his ASSet less rich or may even run in cashflow problems to pay his loans. The landlord has then two forces working against him: the lower rents and lower property prices. He becomes like the man in a bear market long dividend paying stocks who keep lowering their dividends while the price fall. His equity goes down, but at least he does not have a broker who liquidates his position if a margin call is not met.
So deflation has pluses for some, and minuses for others.
Wage setters benefit from the profit margins, so it does not matter to them whether it is inflation or deflation. Analyze the problem from the rent setters perspective and landowners perspective. How could they accept deflation?
Rent is the fundamental (and maybe only) reason why there has been outsourcing.
In inflation and rising economy (in paper terms, not necessarily in nominal terms), landlord is king. Think of it as dividend stock owner: if stock rises, and dividend rises, he wins even if gold were to rise. He still gains even if gold is the unit of measurement and gold were to rise, because he has a profit. The real estate "bubble" was not a "bubble", it was rational from the point of view of the real estate owner, and a correct investment as long as one gets out before the elephant behind the curtain showed up.
We can discuss the elephant. Who brought it in there? Who helped it ruin the party? Etc.
The leadership of the US must be hoping for lots of inflation [reduces their debt] and low interest rates [allows them to make minimum payments without over-borrowing]. That would be wild times for the private sector, a speculator's dream scenario...
Low rates yes, but not a lot of inflation. The US has had it just right since 2011- I would say perfect with the exception of rent. So it makes sense the market bottomed in 2011, after 6 years of bad times.