Tuesday, August 24, 2010

What the heck is "deflation"?

Posted By on Tue, Aug 24, 2010 at 11:49 AM

Simply put, deflation is an economic term that means prices are falling. It's also a time when credit gets tighter. We're all familiar with inflation, where prices rise, right? Well, deflation is inflation in reverse. And, on the surface, it probably sounds like a good thing to most consumers. But just the mere mention of deflation makes some folks — like economists — freak out, even though everything's on sale.

Here's why: It means we're not spending money. And, just so you know, a huge hunk of the global economy relies on Americans overspending. Problem is, we're busted — aren't we? We've been overspending for so long, we're simply out of money ... and, in some cases, we're out of credit, too. When we stop spending, demand goes down. When demand goes down, some suppliers end up getting stuck with merchandise, some service providers no longer have anyone to serve and, spiral downward a little further, people all over the world lose their jobs and then they aren't able to spend money either.

This is why you have brain trusts like President "W" Bush telling people to spend money — advice he took to heart as his administration added an estimated $4 Trillion to our country's debt. That's right, trillion with a "t." Which is ironic since, in 2001, he said this during one of his national radio addresses, "My plan reduces the national debt, and fast. So fast, in fact, that economists worry that we're going to run out of debt to retire." His comment is all the more interesting since Junior walked into the White House with a budget surplus of $124 Billionwith a "b" — that he and his administration quickly burned through.

But, he didn't just want the government to spend big, he wanted us to spend big. Remember, way back in 2001, when most of us got a government check in the mail and "W" told us all to go shopping? And, he did it again in 2008 when we were all sent stimulus checks just before he left office. He even told us to go out and spend some money after 9/11, because that's the best way to show them thar terrorists who's boss. Right?

Here's what he said after the terrorists attacks:

When they struck, they wanted to create an atmosphere of fear. And one of the great goals of this nation's war is to restore public confidence in the airline industry. It's to tell the traveling public: Get on board. Do your business around the country. Fly and enjoy America's great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed.

We really showed those terrorists what's up, huh?

Here's another "W" quote from 2004, "I'm asking Congress to pass my Zero Down Payment Initiative. We should remove the 3 percent down payment rule for first time home buyers with FHA-insured mortgages."

Was Junior's advice good advice? Well, take a look at your financial situation and decide for yourself. Should you have bought all that crap on credit, crap that's probably collecting dust? Happy with your mortgage? How's your savings account doing? Which college do you plan to send your kids to?

I mean, looking back, reading through these quotes, it sounds like Bush, Jr. was a frikkin' comedian, not someone to take budgetary advice from. But, what he was really saying — what he wanted you to understand in his colloquial way — was that the global economy grew to depend too much on us, like a grown child that won't leave home. Well, that's the global economy's fault for expecting us to leverage our futures for the next shiny gadget. Now we're all in this shit together, and we have no one to blame but ourselves.

But, is deflation really upon us? You read the tea leaves:

I'll stop there, because this is depressing ... which leads me to the other "D" word that freaks everybody out:

But, he didn't just want the government to spend big, he wanted us to spend big. Remember, way back in 2001, when most of us got a government check in the mail and "W" told us all to go shopping? And, he did it again in 2008 when we were all sent stimulus checks just before he left office. He even told us to go out and spend some money after 9/11, because that's the best way to show them thar terrorists who's boss. Right?

Here's what he said after the terrorists attacks:

When they struck, they wanted to create an atmosphere of fear. And one of the great goals of this nation's war is to restore public confidence in the airline industry. It's to tell the traveling public: Get on board. Do your business around the country. Fly and enjoy America's great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed.

We really showed those terrorists what's up, huh?

Here's another "W" quote from 2004, "I'm asking Congress to pass my Zero Down Payment Initiative. We should remove the 3 percent down payment rule for first time home buyers with FHA-insured mortgages."

Was Junior's advice good advice? Well, take a look at your financial situation and decide for yourself. Should you have bought all that crap on credit, crap that's probably collecting dust? Happy with your mortgage? How's your savings account doing? Which college do you plan to send your kids to?

I mean, looking back, reading through these quotes, it sounds like Bush, Jr. was a frikkin' comedian, not someone to take budgetary advice from. But, what he was really saying — what he wanted you to understand in his colloquial way — was that the global economy grew to depend too much on us, like a grown child that won't leave home. Well, that's the global economy's fault for expecting us to leverage our futures for the next shiny gadget. Now we're all in this shit together, and we have no one to blame but ourselves.

But, is deflation really upon us? You read the tea leaves:

I'll stop there, because this is depressing ... which leads me to the other "D" word that freaks everybody out:

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