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Deflation is Here, What Next?
Old 10-12-2008, 12:15 PM   #1
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Deflation is Here, What Next?

How deflation will change social mores.


The article discusses how deflation will change our lifestyle
and the things we value creating a different more real society.
This would be a huge paradigm shift not only in the economy
but in people... change [hopefully] for the better.




Minyanville - Market Commentary, Investing Ideas, Global Finance, The Economy



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Quote:

The long-term secular forces of debt revulsion and deflation continue to build and are showing up in social mood with increasing frequency. The question is what do these forces mean for our everyday lives, how will they manifest in popular culture and lifestyle?

**

This is a rather straightforward manifestation of how society copes with more challenging economic times; by seeking a positive outcome from less work and less consumption, and by challenging the boom hypothesis that hard work is both critical to economic success and something worth valuing above time spent at home with family and children.

Yet another social manifestation of debt revulsion and anti-consumption preceding the breakdown of a debt bubble is the conscious attempt to revolt against the explosion of simulacra that the fiat currency-based debt bubble inevitably produces; simulacra in finance, food, fashion, art and culture.

**

The Crisis of the Real

A significant consequence of the massive debt bubble we have experienced is the inevitable explosion in simulacra, of which derivatives are a prime example; the dissection of financial assets into increasingly discrete objects, or instruments, that ultimately displace the reality of the underlying asset and assume their own reality that exists separate and apart from the very thing upon which they were based. Thanks, in part, to extreme leverage, this new reality supersedes the original in both importance, and also fragility, attaining the ability to actually destroy the very asset upon which the derivative was based.

**

What Next?

This debt revulsion and structural deflation demands a readjustment that has profound consequences for society. What does a revolt against the displacement of the "real" entail?

First, from a consumption standpoint, it entails a shift in focus, a change in patterns of accumulation and the valuation of material objects.

~
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Old 10-12-2008, 12:27 PM   #2
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First, let me say I don't know much about economic theory. But I read the article, then read a couple definitions of deflation, then reread the article. It seems to be full o an awful lot of "ifs". First, deflation is a prolonged period of price drops. We're currently in a very very short period of price drops. Second, as noted in the article, the world banks and gov'ts are reacting by throwing newly printed money at the problem. I see this as more likely to produce inflation than deflation. Also, I doubt that there will be a long term decrease in demand for the major price indicators (oil, housing, food, etc).

I'll keep an eye on things so as to not be caught with my pants down (I hate it when that happens ). But I think right now that deflation ranks a fair ways down our list of worries. JMHO.
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Old 10-12-2008, 12:46 PM   #3
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This article is one of the most important, enlightening articles
I have read in quite a while.... how a global deflation would
affect lifestyle in the near term and how a prolonged deflation
would affect culture in the long term.

One doesn't see the potential for a huge global paradigm shift
like this everyday.
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Old 10-12-2008, 12:56 PM   #4
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Long-term deflation is an economic death spiral. One silver lining in all that money government will be printing to support bailouts, stimulus programs and the like is that those may create enough inflationary pressures to offset the deflationary effects of a huge disappearance of wealth over the last year.
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Old 10-12-2008, 01:29 PM   #5
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Wealth did not disappear.. credit disappeared. There are no fewer houses or cars or drugs or bombs, no less gold or wheat or oil or wool or cotton or WalMart crap than there was last year (within normal margins of fluctuation, anyway).
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Old 10-12-2008, 01:29 PM   #6
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This article more than any other has convinced me
that deflation, not inflation, is the future... why ?
Because of the culture changing aspect of deflation.
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Old 10-12-2008, 01:31 PM   #7
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Originally Posted by ladelfina View Post
Wealth did not disappear
Tell that to someone who just retired on their 401Ks and IRAs this year.

Tell that to anyone who sold stocks in a panic at these levels.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 10-12-2008, 01:58 PM   #8
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ziggy29, I only retired in 2003. I was 80-90% equities as I was in it for the long haul (40+ years). I only sold off about 10% but not at the lowest recent levels. I don't have a pension. Wealth I still have=cash to live on for 3 years at least, a paid-off house, some gold and jewelry, furniture, clothes and other objects. Stocks that may or may not survive and may or may not continue to pay dividends. OK health for now. Most people in the world do not even have this, so I am still one of the luckier ones. It's not my fault that things had fantasy prices!
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Old 10-12-2008, 02:03 PM   #9
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Of course it's not your fault -- I'm just saying that for many people there *is* a very real loss of wealth. Now for me, being that all my stocks are in retirement accounts that won't likely be tapped for 15 years or more, there is a "paper" loss of wealth but no real, locked-in loss. But for those who just retired and started taking out their 3-4% this year, this is potentially a big hit.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 10-12-2008, 02:17 PM   #10
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Quote:
Originally Posted by Helena View Post
This article more than any other has convinced me
that deflation, not inflation, is the future... why ?
Because of the culture changing aspect of deflation.
Unfortunately the "utopian" vision hinted at in the article would be a far cry from reality. Long term deflation is an economic death spiral as ziggy pointed out. Your lifestyle would change but not all for the better...unless you look fondly upon the Great Depression

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Old 10-12-2008, 03:06 PM   #11
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Quote:
Originally Posted by ziggy29 View Post
Of course it's not your fault -- I'm just saying that for many people there *is* a very real loss of wealth.
All sorts of entities bought mortage backed securities as a relatively safe place to park money. Lots of money. But the hunger for a place to put the money led to too many bad loans. That might be ok if the value of real estate held up and if there were not too many defaults. But the value did not hold up and their are too many defaults.

So, money went poof.

I am not so sure what that means to the world economies and what the bailout proposals do to stop that from happening.
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Old 10-12-2008, 03:10 PM   #12
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I'm no economist, but I would assume that, for deflation that affects an investor to be here to stay then.... we have to assume global consumption drops so fast that we can't ratchet down supply fast enough, population stops growing, economies in BRIC completely stop (everyone climbing the ladder in China decides they'd rather stay in place), and we never see a contracting of commodities (oil doesn't run out, no long-term pressure on grain growers).

I'd need more than a week of crisis in the markets to buy into that.
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Old 10-12-2008, 05:09 PM   #13
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Quote:
Originally Posted by Helena View Post
This article more than any other has convinced me
that deflation, not inflation, is the future... why ?
Because of the culture changing aspect of deflation.
I was taking this topic seriously at first, but this doesn't make any sense. I could write a flowery description of a culture change due to global warming (don't need clothes anymore, can grow 3' diameter tomatoes), but that doesn't mean it's going to happen. The future is determined by actions and environment, not magazine articles. Go away.
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Old 10-12-2008, 05:16 PM   #14
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Quote:
Originally Posted by harley View Post

Go away.

I will go away, but I will check back from time to time to see how
the inflation dependent "buy and hold" philosophy is working for ya.

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Old 10-12-2008, 05:18 PM   #15
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I will go away, but I will check back from time to time to see how
the inflation dependent "buy and hold" philosophy is working for ya.
Do you really think we're going to have deflation when world central banks will be printing trillions of dollars and euros to maintain liquidity?
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 10-12-2008, 05:21 PM   #16
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Quote:
Originally Posted by Helena View Post
This article more than any other has convinced me
that deflation, not inflation, is the future... why ?
Because of the culture changing aspect of deflation.
You first need to make a case for why global deflation will happen. Until I see that, it's just lovely prose.
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Old 10-12-2008, 05:24 PM   #17
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Zig, give it up. You can't change the mind of someone who knows they are right.

I'd suggest a better response to the quote would be, "Great! Check back with us in about 5 years and we'll compare notes."
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Old 10-12-2008, 05:27 PM   #18
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Originally Posted by REWahoo View Post
Zig, give it up. You can't change the mind of someone who knows they are right.

I'd suggest a better response to the quote would be, "Great! Check back with us in about 5 years and we'll compare notes."
Affirmative. My "go away" wasn't a suggestion, it was my indication of the first use of my ignore button.
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Old 10-12-2008, 05:59 PM   #19
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In the long-term though, that loss in spending power by the retired who are selling their stock will be offset by the increased value that the people buying the stock are getting.

Lower stock prices do not destroy wealth per se. The wealth that stocks represent is still the same-- the beneficiaries are now the buyers rather than the sellers.


Quote:
Originally Posted by ziggy29 View Post
Of course it's not your fault -- I'm just saying that for many people there *is* a very real loss of wealth. Now for me, being that all my stocks are in retirement accounts that won't likely be tapped for 15 years or more, there is a "paper" loss of wealth but no real, locked-in loss. But for those who just retired and started taking out their 3-4% this year, this is potentially a big hit.
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Old 10-12-2008, 06:56 PM   #20
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When most people hear the word 'deflation', they think of price deflation. I don't see much evidence of this (yet), except for a modest drop in gasoline prices. A major drop in economic activity would hit most people much harder. Price deflation would not necessarily accompany a depression.

Do times of stress, uncertainty, fear, and suffering bring out the worst in people, or the best? I'm not willing to generalize, except to suggest that the variation among people becomes greater during such times (the folks prone to bad behavior get even worse, and the folks prone to good behavior get even better). I hope that things don't get bad enough that this hypothesis is tested.
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