Price Deflation vs Asset Deflation

[lrm21]

Good Site which offers a different perspective with good analysis

Price Deflation/ Inflation and Asset Deflation/Inflation

and how you can have an economy where Asset prices are deflating while consumer prices inflate.

A very destructive combo.

Many think if we get inflation our homes, will shoot up in price, or we will be able to payoff our debts.

But in reality that will not happen.

As the effects of inflation and deflation can occur in different areas and will affect different groups.

Inflation During The Great Depression

As the financial crisis continues to deepen, many people are deeply concerned that collapsing credit availability will lead to powerful monetary deflation, much like it did during the US Great Depression of the 1930s. As compelling as these arguments seem to be – are they backed up by the actual historical evidence?

In this article we will:

1) Ask a crucial real world question about deflation theories;

2) Revisit the US Great Depression with a focus on 1933 rather than 1929;

3) Show that the central monetary lesson of the US Depression is not the unstoppable power of deflation, but rather, the historical proof of how a sufficiently determined government can smash monetary deflation and replace it with inflation – at will and almost instantly, even in the midst of a depression;

4) Examine two historical and logical fallacies that lead to the mistaken (albeit widespread) belief that the Depression proves the modern deflationary case, when it in fact proves the opposite; and

5) Briefly discuss the third logical fallacy that threatens many investors’ standards of living over the years to come, particularly those who are retired or investing for retirement.

http://the-great-retirement-experiment.com/Products/Deflation Myths One.htm

False Lessons From Japan

Puncturing Deflation Myths, Part 2

In Part 1 of this series on Puncturing Deflation Myths, we reviewed three logical fallacies, and showed why the US Great Depression didn’t prove the case for monetary deflation, but rather provided historical proof of how a sufficiently determined government could break monetary deflation at will, even in the midst of depression. In this Part II we will uncover three more logical fallacies as we:

1) Revisit our central question with regard to widespread theories about rapid and uncontrollable price deflation threatening symbolic currencies (“when has it ever happened in the real world?”) and review what actually happened with modern Japan;

2) Show the true peril experienced by Japan over the last 20 years, which is not monetary deflation but the much more deadly asset deflation;

3) Uncover the extraordinarily dangerous logical fallacy that results from confusing the two types of deflation, and show how this fallacy is currently leading millions of investors to mistakenly believe the value of their money is protected by bad economic times – when it has no protection at all; and

4) Briefly discuss why individual investors need to leave conventional financial wisdom behind and explore “outside of the box” solutions to these pressing issues.

http://the-great-retirement-experiment.com/Products/Deflation Myths Two.htm

 

[gnome]

We are already seeing this to a degree. Food prices, movie tickets, haircuts, health care, etc.. all increasing while stock market, RE, and interest on savings decreasing.

 

[deswamped]

yes in a nutshell....

first people buy food, then they buy shelter, then they buy desireable things

if the value of food goes up, then the value of all other things goes down.

cost push inflation affects consumables mainly
quantitive inflation affects everything but in a pyramidial heirarchy beginning with assets, and ending with wages, to create an inflationary spiral for a time that must battle itself out, wage earner versus capitalist. (and corrupt government officials)

demand pull inflation is simply a temporary mode which is eventually offset by the division of labour.

Ultimately where does the division lie in where the inflation hits most?

On who wins the showdown of wage earner versus capitalist. Usually the capitalist wins, which is why inflation is perpetuated.

But everyone, even the capitalist loses in the long run.

Why?

Because the god of economics is efficiency. If inequality or equality is forced beyond natural equilibrium, then even the initial gainers will lose out in the long run (unless they are wise and cut and run before a revolt or crisis)