Deflation inflation: A scary journey ahead!

Econ 101: Inflation: a time of generally rising prices for goods and factors of production.

Deflation: a time when most prices and costs are falling.

Neither in inflation nor in deflation do prices all move in the same direction or ib exactly the same proportion.

That's just about a quote from Samuelson, the '73 edition I used as a graduate teaching assistant.

For a variety of reasons some factors of production may assume a greater value (e.g., commodities), vis a vis others (e.g., U.S. wages in an open international marketplace) over time. But that's not inflation and deflation existing simultaneously. It's prices as a market mechanism to adjust supply and demand whether it be oil or labor markets.

Sheldon, I still maintain my position that our economic down slide is hinged first upon the decline of middle class median income relative to cost of living, and second, upon a world economy which has been built using debt. That debt takes the form of both purchasing with yet unearned income, and borrowed speculative investment in unsubstantiated growth potential.

What scares me the most is that the squeaky heads in Washington are attempting to right this ship using the same proposition of spending unearned income which landed us where we are right now.

There's nothing wrong with consumerism. There's nothing essentially wrong with the instant gratification mentality. However, when blind borrowing becomes the basis for serving these two concepts, we get what we've asked for when the means fail to serve the end.

I'd add more here, but I have to get to my job - while I still have one...

What we are seeing is the outcome of Orwellian math. When society believes that 2+2=5 you have problems. Welcome to the CA budget. Welcome to the mortgage meltdown. Welcome to our current recession. People and goverment have been spending 120% of what they have for waytoo long.

The problem is that people are waking up to the fact that 2+2=4 not 5 and that if you have been spending five when you only have four you are in the hole by 20%. Now you have to make up the hole that the miscalc created.

That leaves only two ways out of the problem.

1. spend less -currently happening
2. unknown disrupter. Is there going to be a productivity boost from something like the pc or the net that will create a whole new industry for people to work in.

We've always had inflation and deflation at the same time. I like them both. If the market wants an asset to cost more, inflation is a really good means to get the job done. If the market wants an asset to cost less, deflation does the trick real well.

I think they are both provide excellent economic service to our economy.

I remember the "stagflation" of the 70s where prices rose & wages didn't. Seemed pretty rough at the time, though it may have been that I wasn't old enough to understand exactly what was going on.

But, no I don't believe that it is possible to print trillions here & trillions more in China & trillions more in Europe & not have the rapidly expanding volume of money chasing a smaller growing pile of goods & services. Thus inflation.

Gary has a point in that the wealthiest 5% of the population have a greater percentage of the total wealth of the counrty than ever before. I don't see how that can be healthy.

Shut down the trading of commodities by people that never intend to touch them, only intend to profit off the trading of them, and you solve all of our problems.

Capitalism must owrk on supply and demand from producer to buyer. Not from producer to middleman that sets the price to buyer. The middleman will always set a price that is benificial to him rather than that of the producer or buyer.

We have artificial prices for nearly every commodity. These speculative bubbles are what set off this economic collapse and the past collapses. We have created a boom/bust cyccle that has destoryed the middle class and tranfered nearly all wealth to 5% of the population.

We need a stable market and the only way to do that is to get rid of speculative trade. True value is a small percentage above your base cost to produce. If you have a 30% increase in base cost due to speculative price you have 30% inflation based on vapor. The 30% that is taken away from consumers, since all price increases are passed down to the end of the line, this goes to fund a few wealthy traders rather than the producer. Increased base cost causes increased retail cost which means lower sales. Lower sales means less profit which means less jobs.

In order to get more sales the company must reduce profits even in a time where base cost is up. This further puts a strain on profits and you get massive bankrupcy.

All base materials need to go down in price, steel, wood, coal, copper, oil. They all must go down. Demand shows that these prices must go down but they are on the way back up. Why because traders are using base materials as hedge investments artificially propping up the price and preventing an economic recovery.

Base level deflation is good for the economy, it is only bad for traders who put thier fortunes in these base products. Everything is too expensive for current wages. The only way to recover is to either increase wages, which only leads to inflation, or reduce base cost substantially.

Yes, I believe we can have inflation and deflation at the same time in a world where we are no longer the driver in regard to demand. First though, a short time out is in order to point out that though unemployment numbers are rising we cannot compare them to 1982. Our population and the number of workers is much larger, probably 40-50%, therefore the figure as a percentage of the total workforce is actually smaller.

Now where do we go from here? We could find the prices of commodities rising even though our real wages are falling as a matter of fact that might create that type of scenario. If we are competing globally for resources prices would rise particularly if we keep pricing oil in dollars.
Could we become Iceland? Hard to say. Maybe we're already there.


Really though its time to take our medicine. Let the Big Three go into Chapter 11. The scope of change in the American economic landscape during the past five months is mind boggling. In America everybody gets what they want whenever they want it. We need to suffer. Not just the poor but the rich also.
The Yankees just signed a ball player for $160 million dollars. A middle class family of four couldn't even go to see a game if they wanted. We're celebrity obsessed; we fear nothing.

Wow, for everyone who said we can have inflation and deflation at the same time please tell me your logic, or please don’t post. It is clearly posted on the CPI index the inflation OR deflation rate. You can’t have both at the same time. The problem will end up being hyper inflation, because trillions of dollars lost governments pumping in multi billion dollar bailouts will have no effect because the market may even take that away. Now when the economy hits bottom and starts to recover and if there is still being money pumped into the economy and low interest rates we will have a problem with hyper inflation similar to that of Japan in the 80’s. We have to walk a very fine line in providing bailouts and cutting interest rates, because our tax system does not recognize inflation.