Dichromate
2008-12-18, 01:14
http://news.bbc.co.uk/2/hi/business/7785842.stm
The Consumer Price Index (CPI) dropped by 1.7% in November, according to the US Labor Department, following a decline of 1% in October.
October and November's falls were the two biggest since monthly data first started being recorded in 1947.
The fed has had interest rates lower than low for months now, dropping them again won't do jack.
This may well not actually be a proper fall in prices given how US CPI data is manipulated, but if the rate of inflation is falling at an increasing rate it will be happening for real sooner or later.
Deflation plus high levels of consumer debt = lulz
Prices falling sounds cool, except wages (or if wages are inflexible then employment) are also falling. Debt however is denominated in dollar terms so the "real" as opposed to nominal value of debt increases.
If the real value of debt is increasing(including the cost of maintaining it) and at best real incomes are remaining stagnant (sux2be laid off) guess what happens?
increased cost of servicing debt means less disposable income, less disposable income means less aggregate demand.
And less aggregate demand? well kiddies, that's going to cause a fall in the price level isn't it?
This is exactly what happened in the great depression except that in this case the debt level is even higher now then it was in the depths of the great depression - AFTER debt deflation occurred.
http://www.debtdeflation.com/blogs/wp-content/uploads/2008/11/IMG0010_4969937.PNG
Okay - that first hump there in the early 30s... yeah... that's during the great depression AFTER deflation.
What makes this hilarious though is that it gets worse - just like back then, defaults are going to occur.
Only problem is that defaults mean fire sales, which drive down prices further (see the housing market), and even more importantly, defaults mean the collapse of financial institutions and contractions in the money supply (because of fractional reserve banking).
Bank runs back in fashion I guess.
Anyway - fall in the money supply means fall in prices - less money chasing all other things being equal a similar amount of goods.
The phase "cascading defaults" would do a pretty good job describing what will happen.
This is going to be worse than the great depression.
It'll probably take a while yet to get properly started, but unless the government changes tactics it could very well happen.
The Consumer Price Index (CPI) dropped by 1.7% in November, according to the US Labor Department, following a decline of 1% in October.
October and November's falls were the two biggest since monthly data first started being recorded in 1947.
The fed has had interest rates lower than low for months now, dropping them again won't do jack.
This may well not actually be a proper fall in prices given how US CPI data is manipulated, but if the rate of inflation is falling at an increasing rate it will be happening for real sooner or later.
Deflation plus high levels of consumer debt = lulz
Prices falling sounds cool, except wages (or if wages are inflexible then employment) are also falling. Debt however is denominated in dollar terms so the "real" as opposed to nominal value of debt increases.
If the real value of debt is increasing(including the cost of maintaining it) and at best real incomes are remaining stagnant (sux2be laid off) guess what happens?
increased cost of servicing debt means less disposable income, less disposable income means less aggregate demand.
And less aggregate demand? well kiddies, that's going to cause a fall in the price level isn't it?
This is exactly what happened in the great depression except that in this case the debt level is even higher now then it was in the depths of the great depression - AFTER debt deflation occurred.
http://www.debtdeflation.com/blogs/wp-content/uploads/2008/11/IMG0010_4969937.PNG
Okay - that first hump there in the early 30s... yeah... that's during the great depression AFTER deflation.
What makes this hilarious though is that it gets worse - just like back then, defaults are going to occur.
Only problem is that defaults mean fire sales, which drive down prices further (see the housing market), and even more importantly, defaults mean the collapse of financial institutions and contractions in the money supply (because of fractional reserve banking).
Bank runs back in fashion I guess.
Anyway - fall in the money supply means fall in prices - less money chasing all other things being equal a similar amount of goods.
The phase "cascading defaults" would do a pretty good job describing what will happen.
This is going to be worse than the great depression.
It'll probably take a while yet to get properly started, but unless the government changes tactics it could very well happen.