Specter of Deflation Lurks as Global Demand Drops

[RedEarth]

Source: NYTimes

As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.

The word for this is deflation, or declining prices, a term that gives economists chills.

Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan’s so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament.

“That certainly is the snapshot of the risk I see,” said Robert J. Barbera, chief economist at the research and trading firm ITG. “It is the crisis we face.”

With economies around the globe weakening, demand for oil, copper, grains and other commodities has diminished, bringing down prices of these raw materials. But prices have yet to decline noticeably for most goods and services, with one conspicuous exception — houses. Still, reduced demand is beginning to soften prices for a few products, like furniture and bedding, which are down slightly since the beginning of 2007, according to government data. Prices are also falling for some appliances, tools and hardware.



Read more: http://www.nytimes.com/2008/11/01/business/economy/01deflation.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1225506456-D2X/eMVsX6qtA4RaiYvqvw

[nadinbrzezinski]

1. Now that is a scary halloween story,

:-(

This is extremely serious

[Barack4Ever]

3. totally

Still think Obama will pull us out in the third Q 2009

[nadinbrzezinski]

5. Depends on how much of a mess the boy leaves behind

and how aggressive they get by the first 100 days,

From the rumor mill, they are studying the first 100 days of the FDR administration, where some of the New Deal Legislation came in, including the emergency finance laws

[jwirr]

10. He may not be able to protect us from ourselves but better him than

mcshame. We have always known that this situation was far worse than *ss has been letting us know. I still think Obama's plan will work - we cannot just set back and give up.

[kestrel91316]

2. Cheaper food and rent and shoes would be much appreciated.

Those $110 clogs I am fond of are killing me, but I won't put junk on my feet. Cheaper supplies for the clinic would be mighty nice, too.

[nadinbrzezinski]

6. Deflation is not as nice as you think it is

in fact, it is as disastrous as run away inflation.

It can mean that you have the clogs in the store, but there are no dollars in circulation for you to buy them...

That also means a viscous circle where things keep dropping and people start abandoning them. Why the housing mess will require close to a T to solve before all is said and done

[kestrel91316]

8. I probably could cobble together enough clients to barter with

to get me by........and Hollywood did well in the last Depression, so we probably won't be hit as hard here as some other places.

Wishful thinking, I know. I remember my grandmother telling me how "nobody had any money" in the Depression, and I couldn't wrap my mind around that, that there simply weren't ANY dollars being passed around.

[jwirr]

11. My grandmother told of selling a gallon of milk for a dime. And often

that was bartered for some other real need.

[kestrel91316]

15. Well, a gallon of milk would still bring you several dollars around these parts.

There's no shortage of people with money to burn in this town.

[nadinbrzezinski]

12. Ah barter... it was done in the day

and your grandmother was right

That said... from what has been done so far I don't expect a depression... (yes definitions matter)... but a bad recession could also be deflationary in nature. They tend not to be since guv'ments intervene heavily into the economy (with a few exceptions, see Japan where some argue they did not go all the way), why the interest rate right now is 1%, don;'t be TOO shocked if it goes down to zero... and if that still does not work... they will start printing money, which leads to inflation

That said, I'd rather have a bad recession, even if there is some inflation (now hyperinflation is one of my nightmares), than a slight depression.

[dixiegrrrrl]

14. But for the folks who DO have dollars, cheap goods is ....good?

Lots of economic pundits were recommending people to get out of stocks, funds, etc and go to cash.

[burythehatchet]

4. this was my greatest fear in regards to the economy

[nadinbrzezinski]

7. Well this is in my top five fears...

but you get it

:-)

[jwirr]

9. That is the results of the credit card crisis. The payment to the cc is

a hugh part of every household budget and it is taking way more of income than it should. When that happens there is no alternative but to stop buying. Even things you would ordinarily call necessities. We the people are broke.

[xchrom]

13. recommend