Thursday, January 07, 2016

deflation hits the eekonomy

..."(D)eflation is a decrease in the general price level of goods and services," and "occurs when the inflation rate falls below 0%." (Wikipedia, s.v. Deflation.)

For all the hand wringing and gnashing of ye teeth since '08 by our overlords and masters over the dangers of inflation, ye chickens have come home and we find our eekonomy severely deflated, mainly because the floor holding up oil prices has fallen away. Fewer people are working & commuting now than in 2007, and demand for gasoline is way off and continuing to drop. But world production has not diminished. mainly due 2 jealousy & infighting among OPEC members, & The organization that was once the producers' great strength is now a liability.

Compared to inflation, deflation is simple and easy to understand. A year ago in Phoenix, $1.89 would buy us a half gallon of gas; today it gets a gallon. The money in our pockets is literally worth more than it used to be, because it buys more stuff. And the price of oil in this transport-dependent world affects the prices of all goods and services that need 2 B delivered, or nearly everything.

Deflation is good for savers, because your bank account grows even when you don't add funds. It's conversely bad for debtors, because they have to repay "cheap" money with the expensive stuff. In fact, deflation may seem like a net positive until we recall that a lot of stuff is being sold 4 less than it costs 2 produce. If deflation sets into an eekonomy with force, all productive activity eventually grinds to a halt, everyone gets laid off, and we all move to our new address on Tobacco Road.

This is the danger of deflation, and if it was here to stay I'd be worried. However I fully expect Sen. Sanders 2 take the Oval Office early next year, and thru a combination of threats and sweetness, convince Congress to raise taxes on the nation's fat cats sufficiently to enable him to hire a few million people to reconstruct our crumbling infrastructure.

Failing that, we'll have a rump Congress and lots more deflation, and I'll see you in a ditch that runs along Tobacco Road, where we'll fight over a 25# bag of turnips.

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