Replies to post #47517 on !! Big Boards scans, charts and news !!

[lee kramer]

Excellent stuffie. Off to brew some coffee.

[Tuff-Stuff]

The Deflation Threat
Jan. 26, 2015 5:14 AM ET | Includes: DEFL

There's been a lot of talk recently about deflation - no I'm not talking about the New England Patriots - so maybe it's a good time to talk about what it really is and why so many economists seem to be in a tizzy about the possibility. For most of the folks who spend their time pondering such things, deflation is a general fall in the price level, something the average person probably has a hard time seeing as much of a threat. Economists, on the other hand, see deflation as a mortal threat to economic growth. I tend to agree with the average Joe - I don't hear anyone complaining about cheaper gas prices - but the economists do have a few good points as well.

So what is deflation really? Economists label a fall in the general price level as deflation and based solely on the US experience in the Great Depression, fear it like a werewolf fears a silver bullet. Central bankers the world over see falling prices as something to be avoided at all costs. Mario Draghi and the ECB announced their conversion to the cult of Quantitative Easing last week in response to fears that Europe is falling into the clutches of the dreaded drop in prices. They seem to believe that, faced with a lack of demand, the thing to do is raise prices. Any CEO who announced a price hike as a means to dispose of excess inventory would be laughed out of his boardroom but almost any economist will tell you that while it makes no sense on a micro level, it makes perfect sense from a macro economic perspective.

But back to that definition of deflation as a fall in the general price level. What does that really mean? What are economists really trying to measure when they talk about inflation and deflation? Rising or falling prices, in aggregate, simply tell you about the purchasing power of your money. If prices are rising - inflation - your money doesn't buy as much stuff as it did before the price rise. If prices are falling - deflation - your money buys more stuff than it did before the price fall. One can't help but think that Americans - and everyone else in the world - would have a very different view of these phenomena if it were explained to them in such clear terms. Inflation and deflation are about money and what you can buy with it. Inflation means you can buy less and deflation means you can buy more.

cont http://seekingalpha.com/article/2848656-the-deflation-threat