Deflation is Here, What Next?

[Helena]

How deflation will change social mores.


[FONT=Verdana, Arial, Helvetica] 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.[/FONT]



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



Some quotes:

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.

~

 

[harley]

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.

 

[Helena]

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.

 

[ziggy29]

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.

 

[ladelfina]

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).

 

[Helena]

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.

 

[ziggy29]

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.

 

[ladelfina]

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!

 

[ziggy29]

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.

 

[DblDoc]

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

DD

 

[Martha]

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.

 

[Marquette]

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.

 

[harley]

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.

 

[Helena]

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.

 

[ziggy29]

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?

 

[Marquette]

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.

 

[REWahoo]

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."

 

[harley]

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.

 

[Hamlet]

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.

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.

 

[socca]

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.

 

[kumquat]

Other than the words 'inflation', 'deflation' and 'fiat currency', I saw no economic content. Looked to me like an essay written by someone who didn't attend class or [-]buy[/-] read the textbook.

 

[haha]

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.

Here is the "logic" to this depression longing. I don't like modern American culture. Depression will change it. I want it changed. I want depression. Depression is coming.

Each one of these steps is invalid, other than depression would be culture changing. But don't expect it to change anything in a way that a sane person would want.

Ha

 

[haha]

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.

It is a loss of wealth. That is why when markets rise the economy gets a boost from the wealth effect, and when markets fall, the economy drops from the wealth effect. There is also the very real loss of borrowing power which has been demonstrated by the closing of the housing ATM. Look how many people on this board are planning to cut back, and we are relatively well off. Some restaurants, retailers, etc. etc. will fail from these cutbacks. Wealth is being destroyed.

It s true that the real economy has not yet lost anything like the financial economy has, but the 30s are proof enough that there is a connection.

Ha

 

[REWahoo]

Here is the "logic" to this depression longing. I don't like modern American culture. Depression will change it. I want it changed. I want depression. Depression is coming.

Each one of these steps is invalid, other than depression would be culture changing. But don't expect it to change anything in a way that a sane person would want.

Ha, I think you are leaving out a key element in this "logic". Modern American culture is bad/wrong. Depression will change it and will punish those who enjoyed the fruits of their evil ways.

Do I hear an "Amen!"?

 

[FIREd]

Isn't it a bit early to declare that "deflation is here"? Has anyone actually seen their wages go down for a few years? Where is the double-digit unemployment rate? Has anyone noticed a sustained drop in the price of goods and services lately? Besides the fall in the price of some assets, I don't see the tell tale signs of deflation right now...