[Riodacat]

Would declining per capita incomes, high personal indebtedness, a depressed economy, high uneployment, underutilized production capacity not lead to deflation and lower prices rather than the inflationary cycle that almost all the talking heads have been predicting?

[Why So Serious]

If you understand the difference between inflation and deflation you might come to the conclusion that you can have a blend of the the two that gives you the worst of both world. Inflation would be the higher priced goods that comes with the debasing of the currency [national inflation], could be coupled with a global work force and the internet that puts downward pressure on wages [international deflation].

My father's inflation is gone forever!

Back in the 1970s Honda had one car in the US, it was the Honda 1000 [today's civic], Datsun has the 240z and all other cars were made here. Most people had a Zenith TV, made here. Most people had ATT phone, made here. Most consumer goods were made in America. And when prices started to rise, my dad could go in to his boss and demand more pay to offset his cost of living increase. As Archie Bunker sang ... "Those Were The Days!"

Today, higher priced goods because of a fed that recklessly prints money, but no wage pressures to accompany the higher priced goods. Why? Because there are 1.2 Billion Chinese and 1.1 Billion Indians who will produce anything you want for a nickle and a bowl of rice per day. That is massive deflation. Cars, TVs, phones all made someplace else.

Americans demanded higher paying jobs and low priced goods ... can't have both.

Low priced goods come from low wages. Our demand for low priced goods caused manufacturing to seek low wages. That is where are jobs went! That is why you can have deflation in some aspects of our life and inflation in other aspects of our life.

[Boogieman]

Normally, when demand drops (say, because people are not spending), but supply stays high, the prices should drop. So, I can see why you might expect deflation, but you also have to take into account the variable of the money supply. As long as the Fed keeps printing money and increasing the money supply, they can offset the lack of demand and stave off deflation. Basically, they are devaluing the currency, so that it takes more dollars to have the same purchasing power, meaning prices are pushed back up.

This is why, although the economists talk about inflationary and deflationary cycles, we never see any drop in prices in the long term, but only a steady, constant inflation. The Fed has been printing money since it was created, so they are artificially maintaining long-term inflation and effectively taxing the wealth of the country away under the radar.