I don't know about the experts saying we are not heading towards deflation. 4.7% decline in car prices in one month is kind of stunning. It is tied into the financing, but it's going to hammer the auto companies who make a ton of money from financing. Wages will be cut, prices fall further to encourage spending, and we get deflation, no?

"If you really want to stimulate the economy, you put interest rates down below the inflation rate," Brusca said. "The lower the inflation rate goes, the harder it is to get the federal funds rate down below that."

The statement would be correct if it read "If you really want to stimulate the economy, you cut taxes." Japan has had a negative interest rate for nearly ten years and they've been in economic intensive care for all that time. People aren't nearly as interested in taking loans as in making money and increasing their wealth. Can't do that without being able to keep more of what you earn.

The fact that this is happening while the FED is actually creating more money hides the severity of how bad this is.

Deflation has been a fact of life in the imformation technology industry for years if not decades.

Here in my part of Georgia, a gallon of regular can be had for 96 cents. It was close to $1.40 several months ago.

I'm clueless about economics, but when gas is that cheap it's good news as far as I'm concerned.

I have a good feeling about Christmas. This will be a special Christmas, God willing. A large number of people are seeking temporary work for their Christmas fund. Freegards....

"Can't do that without being able to keep more of what you earn"</>

Can't earn anything if you don't have a job. Can't have a job if businesses aren't expanding. Can't expand if there's a glut in capacity. Baaaad situation.

If taxes are cut, people who are working will spend more and then there will be a need for people to produce, providing jobs for those without jobs.

"People aren't nearly as interested in taking loans as in making money.."

Bingo! They can set interest rates at zero or even negative, but people aren't going to borrow money just for the heck of it if they don't think that they can benefit financially. Your reference to Japan's experience is right on, but our own experience during the Great Depression was similar.

Deflation of this magnitude can be just as bad as inflation, but we have had so little recent experience with it (and never properly understood our experience with delation in the 1930s)that we cannot see the negative ramifications or implications for drops in price levels like this.

Here in my part of Georgia, a gallon of regular can be had for 96 cents. It was close to $1.40 several months ago. I'm clueless about economics, but when gas is that cheap it's good news as far as I'm concerned.

---

Can you say "Afghanistan sells NO oil?"

Right. And Wall Street is climbing again ... ): (July 2001)

Forbes has been saying we are in a deflationary economy for some time. OF all the financial publications I've read over time, I find Forbes to be the best at determining future results and current analysis. FWIW.

Well, we have been in the beginnings of a deflationary spiral for some time. I really couldn't recommend reading Jude Wanniski more...He termed the phrase "supply-side economics" and the "Laffer Curve" and along with Jack Kemp pushed the Reagan tax cuts in the late 70's and early 80's. He understands economics like no one else. Here is a link to a great article about deflation. http://supplysideinvestor.com/showarticle.asp?articleid=1705

Thanks. I'll get to it as soon as I can. Since 911 I'm WAY behind. Hope you're doing better.

Great article on first skimming but already my lack of expertise is showing.

Wanniski seems to treat deflation as a purely monetary disorder. But my understanding of the present situation is different. People (and businesses) who can afford it already have all the TVs, cars, VCRs, houses, etc., they need or can afford. More than they can afford (there's a MOUNTAIN OF DEBT out there). So all the people who produce those things are sadled with a huge glut in manufacturing capacity. Thus layoffs. You can view this as a monetary problem - if you can get money to those who haven't been able to buy - but I don't think that's what Wanniski has in mind.

Detailed reading will have to wait. Any help in the meantime would be greatly appreciated.

While the prognostications in this article may end up correct, its premises are all wrong thanks to the stunning hubris of modern economists.

Describing rising prices as "inflation" or falling prices as "deflation" is to describe an effect, not a cause. There is no way to determine to what extent a commodity's price is a function of inflation or deflation. The treasury may be printing money to pay people to borrow money, but due to new discoveries of raw materials, advanced production techniques, an influx of cheap labor, weak demand for consumer goods, etc., prices can still be falling. By the same token, the treasury can lock down the money supply tighter than Ebenezer Scrooge and prices can still rise due to scarcity.

Economic analysis should begin from the classical definitions of inflation and deflation as, respectively, nothing more than an increase or decrease in the money stock.

Bingo.

This drop is record-breaking, and much bigger than street estimates just before it was released. It's not yet clear whether the U.S. and the world economy are entering a depression, but it's certainly possible.

Meanwhile, Daschle is still doing his best to block further constructive tax cuts. If he had succeeded in blocking Bush's first tax cut, the economy would be far worse off than it is now. Things are still looking very ugly.

My recommended reading is Frank Shostak's article, Inflation, Deflation, and the Future.

Wanniski assumes there's deflation because gold and oil prices are falling. Again, a commodity's price is a function of many things, and there is no way to tell to from looking at a commodity's price to what extent inflation or deflation is a component part.

What we can say is that any increase in the supply of a commodity decreases the value of each individual unit. It's no different for money. The dollars in your pocket are now worth less than they were one year ago because there's more of them floating around now than in the past. As a result, people are incentivized to borrow instead of save and to consume before they produce in order to exchange their rapidly-depreciating dollars for goods which will hold their value longer than the dollars which they've just given in xchange.

Have fun on the Mises' Institute's website . You'll end up changing your screen name from liberallarry to classicalliberallarry!

I don't know about the experts saying we are not heading towards deflation. 4.7% decline in car prices in one month is kind of stunning. It is tied into the financing, but it's going to hammer the auto companies who make a ton of money from financing. Wages will be cut, prices fall further to encourage spending, and we get deflation, no?

Sucks to be someone in debt.