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Old 06-11-2007, 09:42 AM   #21
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Trouble with deflation: why would anyone buy something today if they think they can get it cheaper tomorrow by waiting?
In a sense, we have rampant deflation in computers and electronics, apart from hedonic adjustments. I haven't purchased an iPod because I know it will be a lot cheaper in the futre, but that hasn't stopped a lot of others.

Apple Matters | How Much Cheaper Is the iPod Going to Get?
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Old 06-11-2007, 11:45 AM   #22
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Al,
Cheaper and better, actually. We have long somewhat heated conversations around the dinner table with my teenage sons about the benefits of waiting to get a new piece of consumer electronics (guess who is advocating waiting, and who instant gratification). So good point, even in a deflationary environment economic activity will still go on, as people need or "need" things today and will buy them even if it will be cheaper tomorrow.
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Old 06-11-2007, 11:47 AM   #23
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In a sense, we have rampant deflation in computers and electronics, apart from hedonic adjustments. I haven't purchased an iPod because I know it will be a lot cheaper in the futre, but that hasn't stopped a lot of others.
Well I bought it 4 years ago, for about $350, since then I've averaged
about 1 hr/day of use, that's about 25 cents per hour, well worth it.
Now I can buy it for $250, big deal, a $100, I could have saved a
lousy $100 ?!? if I waited 4 years...glad I didn't wait.
Is everything about money?? Not for me it isn't.
TJ
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Old 06-11-2007, 10:55 PM   #24
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TJ,
If only my kids could buy and use a piece of consumer electronics for 4 years... Mostly they seem to feel the need for an upgrade every 12-18 months. Thus the 'discussions'. I too am on a 4 year cycle, generally starting a year or two after something gets introduced, just to let some others catch the arrows and work out the kinks (and sometimes catch it after the first price drop/feature improvement).
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Old 06-11-2007, 11:22 PM   #25
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So good point, even in a deflationary environment economic activity will still go on, as people need or "need" things today and will buy them even if it will be cheaper tomorrow.
Having lived in a deflationary economy for some years, it is true that people still buy stuff even if the price is expected to go down. From what I can see, people don't stop buying because prices are going down, rather prices go down because a certain amount of buying has been curtailed for some other reason, like employment uncertainty. That is the un-fun part of deflation. Then wages get cut (employers have more pricing power when job security declines), which makes people feel poorer, even if their net purchasing power has actually gone up because goods got even cheaper, so they buy less. Rinse, repeat.

As for banks offering negative interest, not literally, but they get close enough to zero not to make a difference. Then they try to nickle-and-dime you on fees, so that it does effectively cost you money to keep it at the bank.

But anyway, I do not think deflation causes economic bad times, but is more likely a symptom of them. (But what do I know.)
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Old 06-12-2007, 02:02 AM   #26
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I have a near perfect memory for prices and have been paying attention for about 50 years, living away from parents for 41 years. My first job paid about 50 cents a day but I was 7, when I was a teen I got 25 cents to 50 cents an hour to babysit or $10 per week for the entire summer. First real job paid 1.25 and it was plenty of money to live on. I got a studio apartment for $67 a month including utilities, so I had plenty of money for buying my first pots and pans, dishes, glasses, flatware, I spent $28 at Tall's camera supply for the entire set. Hamburger was 39 to 49 per pound but I could get canned chili beans without meat for 10 cents. With buying bedding and things I couldn't afford a lot of food so tried to live on about 25 cents a day, I lost a lot of weight that way and passed out from low blood sugar from not eating.
Most food items have gone up about 10 times what they were in 1966 but compared to wages they have gone way down. I am making more than 20 times as much as I was then. I expect before I die food will be 10X what it is now but you can adjust by shopping for bargains like chicken is almost exactly what it has always been. Buying a home even if you have a mortgage freezes part of your cost of living and if you have other sources of income that are adjusted for inflation you can become better off once you freeze some cost.
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Old 06-12-2007, 07:18 AM   #27
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TJ,
If only my kids could buy and use a piece of consumer electronics for 4 years... Mostly they seem to feel the need for an upgrade every 12-18 months.
Maybe you should teach them a lesson almost every FIRE person knows,
give them a fixed allowance and tell them to choose wisely what they
buy and take care of it cause that's all they are getting.

I could go on a rant about not having all this cool stuff when I was kid,
had to walk to school in the snow, up hill, both ways...but I don't want
to sound old
TJ
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Old 06-12-2007, 07:24 AM   #28
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10x over 40 years is about 6% a year. That is probably a good number to use when forecasting future costs. If you use CPI, be prepared to switch to a mobile home park to make your budget. As far as switching to reduce cost increases, we are already retired and so the benefits of switching (e.g. chicken on sale) are already in our base.

The one area where ongoing price decreases reduces demand is housing. Ironically, for most of us, this is the biggest single asset.
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Old 06-13-2007, 11:38 AM   #29
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Maybe you should teach them a lesson almost every FIRE person knows,
give them a fixed allowance and tell them to choose wisely what they
buy and take care of it cause that's all they are getting.

I could go on a rant about not having all this cool stuff when I was kid,
had to walk to school in the snow, up hill, both ways...but I don't want
to sound old
TJ
Yeah, we give them a very modest allowance, but they seem to scarf up way too much money from relatives for birthdays, Chinese New Year etc, never mind babysitting and other miscellaneous income generating activities (e.g. selling used books on Amazon). I think what we have to do is play "Federal Reserve Bank" and sop up the extra liquidity with new 'reserve requirements' that involve forced saving. We've not done this in the past, preferring the voluntary saving thing, but it is not working any more than it works in the country overall, so new regulations may be in order...
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Old 06-13-2007, 04:39 PM   #30
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Al,
Cheaper and better, actually. We have long somewhat heated conversations around the dinner table with my teenage sons about the benefits of waiting to get a new piece of consumer electronics (guess who is advocating waiting, and who instant gratification). So good point, even in a deflationary environment economic activity will still go on, as people need or "need" things today and will buy them even if it will be cheaper tomorrow.
In "First National Bank Of Dad", David Owens says kids learn that they have to spend money as quickly as possible before their parents take it away from them and lock it up in that stupid "bank account" where they'll never see it again. From their perspective it's the only logical thing to do.

He said that his kids learned a lot from buying the latest electronic gizmos and, a few months later, trying to sell them on eBay. One unexpected benefit was that they also took better care of their stuff (saving the box & packaging, not letting it get scuffed or chipped) to maximize their resale value. Eventually they work through the immediate-gratification gimmes, so the trick is to get them to work through it at home (where the penalty tuition is lower) instead of at college or their first job.

Another trick we learned from Owens is a six-month CD. We funded it with a dollar a week from our kid's allowance and she could add money any time. Younger kids get a penny per dollar per month, older kids get something around 0.5%-1% per month. If the CD is timed to mature at slack times of the year then they always know they've got birthday/Hanukkah/Christmas money coming at those times of the year and another dose of CD cash ready for withdrawal during the off-season.

A third trick that was especially effective with our five-year-old at Disneyland was to clearly separate the words "shopping" and "buying". She spent the first day "shopping" by exploring every store and helping to make a list. (A very big list.) She knew she could buy anything up to her garage-sale savings ($25) and we were able to reassure her that it would still be there tomorrow. She spent that evening talking over everything (she had to talk it out, and it took hours) before deciding what she could afford to buy with her money. The next day she spent her money for the things on the list she'd decided she could afford.

Today, approaching 15 years old, she knows that when she wants to go shopping she'd better go with Mom, not me. When she's ready to go buying and to haul it home, that's my job.

I think the world's best invention for the "gotta get it now" DVD gimmes is Netflix. It really surprises me what our kid puts on her list, too. Of course with teen boys I'd actually feel obligated to check how Netflix limits their access to "R" or "NC-17" movies. AFAIK with our grrrl it hasn't been an issue, and that's just the way I like it...
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Old 06-13-2007, 05:32 PM   #31
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In "First National Bank Of Dad",
I think the world's best invention for the "gotta get it now" DVD gimmes is Netflix. It really surprises me what our kid puts on her list, too. Of course with teen boys I'd actually feel obligated to check how Netflix limits their access to "R" or "NC-17" movies. AFAIK with our grrrl it hasn't been an issue, and that's just the way I like it...
When I was your daughter's age Franco Zeffirelli's movie Romeo and Juliet came out. Us young teenage girls were all a twitter over the chance to see Romeo's butt. First boy butt I ever saw in a movie.

Anyway, back to deflation. Ramen Noodles cost about the same as when I was in college.
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Old 06-13-2007, 09:34 PM   #32
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When I was your daughter's age Franco Zeffirelli's movie Romeo and Juliet came out. Us young teenage girls were all a twitter over the chance to see Romeo's butt. First boy butt I ever saw in a movie.

Anyway, back to deflation. Ramen Noodles cost about the same as when I was in college.
Nice segue there Martha. Right from Romeo's butt to Ramen's Noodle.

Who's Ramen?

-ERD50
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Old 06-13-2007, 10:13 PM   #33
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Nice segue there Martha. Right from Romeo's butt to Ramen's Noodle.

Who's Ramen?

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Old 06-14-2007, 07:44 AM   #34
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I'll also note that she said "First boy butt I saw in a movie", such segmentation possibly meaning she'd seen boy butt in a non-movie setting prior to that.

I've found lawyers to be like marketing guys...they arent always saying exactly what it seems like they're saying...
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