Are we on the road to deflation?

The Arizona Republic ^ | 08-09-03

[Brian S]

Like guests who overstay their welcome, the specter of deflation just isn't going away.

Just this week, analysts predicted the Federal Reserve wouldn't raise interest rates anytime in the foreseeable future, even if the economy continues to improve gradually. The reason: Central bankers are concerned about deflationary pressures, which tend to build with interest-rate increases.

[Monty22]

Inflation is hovering near zero, which is a GOOD thing. Economists always predict gloom. deflation: bad. inflation: bad.

Silly.

[chris1]

What a bunch of bunk. Look at the price of housing and the cumulative cost of gov't. Yeah, deflation, right.

[steve50]

My bills don't show inflation near zero. We need to remember who and how these numbers are compiled.

[Monty22]

I wasn't commenting on the real inflation rate. I was saying that economists bash whatever is going on, that's all.

[riri]

Going off of memeory here but wasn't there a complete revamping of the way the infationary numbers are compiled during the Clinton years? And if I remember correctly, I think I read they are looking at doing it again.

[riri]

excerpted... The necessities of life are weighted in such a way that when prices actually rise in these critical sectors, the government can state, after applying some fancy government formulas, that prices have remained steady or actually decreased. The Bureau of Labor Statistics has also seriously manipulated the cost of fuel to understate the amount of inflation in the economy. There are other ways the Clinton Administration manipulates the numbers in other sectors of the economy, one way is the use of non-quantifiable 'quality adjustments' which supposedly explains why, even though the prices of goods skyrocket, they are not counted in the governments inflation numbers. Additionally, there are what as known as seasonal adjustments, which the Bureau for Labor Statistics says, "Extreme values and/or sharp movements which might distort the seasonal pattern are estimated and removed from the data prior to calculation of seasonal factors". These 'adjustments' are made only to understate the amount of inflation in the economy, never to correctly convey actual prices that consumers must pay, which is ostensibly what the index was created for in the first place. Not coincidentally, these numbers are used to calculate cost of living adjustments to retirees, the old and infirm. Understating The CPI puts less money in their pockets and saves money for the Administration to give away to foreign governments. In essence, the index seems only to be kept in order to provide a government mechanism that is used to keep the economy from going into a tailspin when prices rise significantly by telling consumers to believe the statistics, not their wallets.

[steve50]

Not sure if it started under klintoon or not but they have always played with the "indicators" and how they are "weighted".

When these guys start talking you have to remember the "liars, damn liars and statistics" premise.

[Lessismore]

i.e. holding salaries steady in an inflationary period is much easier than cutting salaries in a deflationary period

It is easy to cut salaries in a deflationary period -- either fire the employee and hire someone off-shore for 20% or fire the employee and automate the work.

[Rockitz]

You can't outsource haircuts...

But you can cut your own hair with a Robocut (see www.robocut.com) or Flowbee (www.flowbee.com) which pays for itself in about 3 uses. This idiot forgets that productivity gains and innovation affect service industries too. Since when have economists and market analysts been correct over the past 50 years? Wake up America!

[Rockitz]

Mind if I bookmark this, so I can say I told you so. Watching this economy is like witnessing a slow moving train wreck.

[habs4ever]

This article should have been written five years ago.We are on the road to reflation now.

[Rockitz]

The fat lady hasn't even begun to sing yet.

[habs4ever]

The markets say otherwise, such as the dollar and the velocity of money supply, as published by the St Louis Fed.

[Rockitz]

See post #12.

[Rockitz]

There are more than 100 trillion U.S. dollars in notional value outstanding in interest rate derivatives, as of the end of December 2002. That's a lot of cash, and at some point in the not-too-distant future, the fallout created by the unwinding of this leverage will spell catastrophe for the stock market and for some of the large institutions involved in this gamble.

Haven't heard that one before, have you? Just continue to read WSJ and the business section of your local paper and, by all means, listen to CNBC and Bloomberg.

BTW, the velocity of money supply as measured by M2 got a brief bump at the end or 1999 right before it fell off the edge.

[habs4ever]

I don't watch CNBC. Thanks.I also am a professional, so am fully prepared to accept the consequences of my opinions via the verdict of the marketplace.What was prevalent back in 1999 is not today, and if your dire predictions were to come true, they would have already.For some, it just can't get bad enough.