Where's deflation ? The Fed's double standard

[Kicking]

My point is the Fed and everybody else seems to look at the headline to determine whether there is deflation. But when it comes to determining if we have an appropriate level of inflation, then you are told you have to look at the CORE rate , because food and energy are volatile. Isn't that a double standard ? A cursory look at the core rate #'s this year, in the US at least, tells me there was never deflation on a yoy basis and thus we had negative real interest rates .
So what is the justification behind all this talk of "deflation is here "? there may have been a threat of deflation but we never really had it in 2009.

If I am right about the core rate that stayed positive , it's quite surprising that nobody talks about this , not even Santelli on CNBC !

 

[Kassz007]

Quote from Kicking:

My point is the Fed and everybody else seems to look at the headline to determine whether there is deflation. But when it comes to determining if we have an appropriate level of inflation, then you are told you have to look at the CORE rate , because food and energy are volatile. Isn't that a double standard ? A cursory look at the core rate #'s this year, in the US at least, tells me there was never deflation on a yoy basis and thus we had negative real interest rates .
So what is the justification behind all this talk of "deflation is here "? there may have been a threat of deflation but we never really had it in 2009.

If I am right about the core rate that stayed positive , it's quite surprising that nobody talks about this , not even Santelli on CNBC !

You could be right about core inflation, I haven't looked at the numbers closely.

On a side note, I've always thought that food and energy SHOULD be included in deflation/inflation talk because although volatile, do significantly effect prices throughout the economy. Sure, if oil spikes in a particular month inflation will also spike. But that is real. It costs more for consumers at the pump, company's to ship product, etc. etc.

 

[kashirin]

Quote from Kassz007:

Electronics are a different animal. But you can't compare a consumer rushing out to spend a few hundred bucks on a new iPhone to consumers delaying purchases of cars and houses.

You're right, wages don't decrease at the same rate. Instead, the employees are laid off.

The problem with deflation is that it quickly creates a downward spiral. It's easy to say deflation for a year would be a good thing. In reality, that doesn't usually happen. Less demand = lower prices. As long as demand (price) continues to decline, consumers will wait to make their purchases. This in turn causes even lower demand...and the spiral continues. This spiral can be very difficult to break. Since such a large portion of economic activity is consumer driven, deflation seriously damages overall economic activity.

wrong again -
so you say people will avoid buying a car for 10K because next year it will cost 9.9K?

if I need a car now - I will go and buy it. deflation doesn't apply here - especially if deflation like 1-2%

if I need a house and it's a good deal - for example I save 2K on rent per year
and it costs 100K will I wait to buy a house for 99K in a year?

if someone needs cancer drug and die in 6 months will he wait to buy it cheaper in a year?

Al economic laws that apply to electronics all apply to anything else -cars, houses etc.
Deflation would encourage innovation and increased productivity
It can't be bad
In 19 century US was in deflation for tens of years and nothing bad happened


I don't really see any downward spiral here.
The only downward spiral is for debtors who are addicted to cheap credit

 

[Debaser82]

Quote from kashirin:

wrong again -
so you say people will avoid buying a car for 10K because next year it will cost 9.9K?

if I need a car now - I will go and buy it. deflation doesn't apply here - especially if deflation like 1-2%

if I need a house and it's a good deal - for example I save 2K on rent per year
and it costs 100K will I wait to buy a house for 99K in a year?


I don't really see any downward spiral here.
The only downward spiral is for debtors who are addicted to cheap credit

And since global banks and countries are the biggest debtors....

They will make sure no serious deflation will take hold.

Because it would kill them.

 

[luckyluciano]

Quote from Debaser82:

And since global banks and countries are the biggest debtors....

They will make sure no serious deflation will take hold.

Because it would kill them.

So true. In the long run, inflation always wins out. Think back to what the price of a car or a house was 20-30 years ago

 

[Kassz007]

Quote from kashirin:

wrong again -
so you say people will avoid buying a car for 10K because next year it will cost 9.9K?

if I need a car now - I will go and buy it. deflation doesn't apply here - especially if deflation like 1-2%

if I need a house and it's a good deal - for example I save 2K on rent per year
and it costs 100K will I wait to buy a house for 99K in a year?

if someone needs cancer drug and die in 6 months will he wait to buy it cheaper in a year?

Al economic laws that apply to electronics all apply to anything else -cars, houses etc.
Deflation would encourage innovation and increased productivity
It can't be bad
In 19 century US was in deflation for tens of years and nothing bad happened


I don't really see any downward spiral here.
The only downward spiral is for debtors who are addicted to cheap credit

You would get royally fucked in a deflationary environment, I am sure of it. It's not necessarily the PRICE ALONE that causes consumers to delay purchases (although it is a major contributer).

Good luck paying off that $300K mortgage you just took out when you are now making x% less wages and your house is now valued at x% lower than when you purchased it...Effectively most if not all mortgages turn upside down...

That $25K loan you just took out on your car? Oops...it's going to take you x amount of time longer to pay that off.

You think we had a credit freeze last fall? Imagine a deflationary spiral...

Think of the big picture.

 

[jueco2005]

Quote from Kassz007:

Simple economics 101...

People don't spend money in a deflationary environment. Why buy a car today if the price will be cheaper tomorrow?

Deflation kills the economy. Wages also decrease during deflation so your theory of prices coming down so people can afford to buy houses and cars is incorrect.

Then you need to retake eco 101. Your analysis is wrong.

 

[jueco2005]

LETS STOP GUYS

lets begin by defining inflation and deflation.

I think we know different in these two terminologies.

 

[Kassz007]

Quote from jueco2005:

Then you need to retake eco 101. Your analysis is wrong.

How do you figure? Please explain how it is wrong.

 

[jueco2005]

Quote from Kassz007:

How do you figure? Please explain how it is wrong.

Sure...........can you tell me what deflation and inflation are??