[solzhenitsyn]

America is not Japan.

Yup, that is a geopolitical fact. But we have our very own real estate bubble developing, at least in certain urban markets. And instead of the huge savings that have cushioned Japan's consumers, American consumers have a mountain of debt. I doubt that it would take near as much of a push in this country to tip us into deflation.

[Beck_isright]

Which reminds me that this is a great time to short REIT's while the idiots still proclaim (like the tekkies did) "this could never happen to our industry"....

[supercat]

Yup, that is a geopolitical fact. But we have our very own real estate bubble developing, at least in certain urban markets.

I think I'll be renting for awhile, until the bubble bursts. While the monthly payments may be the same for a $180,000 home financed at 5%/30yr as for a $140,000 home at 8% or a $98,000 home at 12%, one has a lot more options with the latter than with the former. If one buys a $180,000 home at a 5% fixed-rate mortgage and property values fall while interest rates rise, one may be pretty well stuck. The $1000/month morgage payment may be affordable, and one might keep the home even as its equity went negative, but one would be quite unable to move. By contrast, if someone gets a $98,000 home at a 12% rate, a drop in interest rates would allow one to reduce the effective cost of one's home, and rising real-estate prices would give the owner more options.

[Stay the course]

Another reason our higher debt makes deflation more of a threat is that deflation increases the real value of debt. Your home decreases in value, and your paycheck is smaller, but the payments on your mortgage and credit cards stay the same.

On the other hand, our low savings rate should make deflation easier to prevent. If the government increases the money supply, Americans are more likely to spend, and Japanese are more likely to stuff the money under their mattresses.

In theory, deflation might be easier to prevent here, but harder to get out of once it starts.