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Most investors / readers know about inflation -- an increase in the price of a good or service not connected to an improvement.

But fewer know about its flipside -- deflation -- a decline in prices.

Moreover, while inflation is a serious problem -- it erodes purchasing power and makes it hard for businesses to project and plan for costs, moving forward- - deflation is an even bigger menace.

That's because deflation decreases the amount of money flowing to businesses for their products/services, reducing the money needed to keep commercial activity alive and the economy growing.

Deflation: a danger sign

Don't misunderstand: a price cut after a company becomes more-efficient, or implements a 'holiday or promotional' sale, is fine. Deflation is different: it's pervasive price cutting and asset price declines -- falling prices across the product/service spectrum -- usually driven by a lack of consumer / wholesale demand.

Further, if deflation persists it can, you guessed it, lead to lay-offs. Companies and factories with lower revenue and demand for their products / services scale-back production to reduce expenses by laying-off employees. Those laid-off employees then cut expenses as they search for new work assignments by cutting spending, resulting in even lower demand for products, further price cuts, and lower company revenues, and a vicious cycle can ensue.

Continue reading Inflation? That's bad. Deflation? That's worse

Inflation? That's bad. Deflation? That's worse originally appeared on BloggingStocks on Mon, 06 Oct 2008 13:27:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments]]>bond marketcommoditiesconsumer price indexcpicredit marketsdeflationdeleverageearningsFedinflationinthenewsleveragemonetary policyraw materialsrevenueU.S. Federal ReserveMon, 06 Oct 2008 13:27:00 EST<![CDATA[Pearlstein: Lack of rescue package threatens global financial system]]>http://www.bloggingstocks.com/2008/09/30/pearlstein-lack-of-rescue-package-threatens-global-financial-sy/http://www.bloggingstocks.com/2008/09/30/pearlstein-lack-of-rescue-package-threatens-global-financial-sy/http://www.bloggingstocks.com/2008/09/30/pearlstein-lack-of-rescue-package-threatens-global-financial-sy/#commentsFiled under: , , ,

Washington Post business columnist Steven Pearlstein does not mince words: too many people just don't get it.

Moreover, yours truly is not one to alarm, and typically views 'sweeping and dramatic statements' with a journalist's skepticism and a scholar's critical review.

But when the best economists you talk to, and business executives, and others in financial and investment circles, start reaching the same conclusion, from decidedly different vantage points, the dramatic statement begins to take on more weight, becoming more compelling.

'The reality of the facts on the ground'

Further, as Pearlstein incisively points out, there are reasons why a considerable portion of the American people are not 'getting it' regarding how serious the current situation is. Politicians are more concerned about ideology, partisan posturing, and teaching people a lesson -- if you can believe that they could be so irresponsible (my astonishment added, not Pearlstein's). Financiers have been very slow to admit to greed, arrogance, and incompetence. And foreign government leaders still view the financial crisis as 'an American problem.'

But none of the above changes what Pearlstein, and what my closest economist colleagues (David H. Wang, Richard Felson, Peter Dawson, M. Chandler, and Glen Langan) all argue is "the reality of the facts on the ground," to borrow a phrase from Israel's former Prime Minister and Defense Minister Ariel Sharon. Namely, that a massive, global deleveraging is taking place, and that absent a systemic rescue/intervention by the U.S. Government, in conjunction with interventions by other governments around the world, the world risks the bursting of a credit bubble that threatens to bring down the global financial system.

Continue reading Pearlstein: Lack of rescue package threatens global financial system

Pearlstein: Lack of rescue package threatens global financial system originally appeared on BloggingStocks on Tue, 30 Sep 2008 18:10:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments]]>bailout billbond marketcredit marketsdebtdeleveragedeleveragingDemocratsforeclosuresgdpinterest ratesleveragemedian home pricesmortgage backed securitiesRepublicansrescue billSteven PearlsteinU.S. CongressU.S. economyTue, 30 Sep 2008 18:10:00 EST