pearl2k

Risk of Long Term Deflation Is Low but Growing

To the author, or anyone else, please explain why deflation, or the popping of a bubble, in real estate or stocks, or farmland or tulips or whatever (deflation to a historical mean: affordability indexes for houses, historical pre-bubble P/E ratios for equities), is a bad thing.

Hyper-inflation causes people to spend money as soon as they get it. Clearly. Deflation prompts people to save money, because they can buy something for less money by waiting? It sounds logical, but is that what's really happening right now? Isn't the American consumer plain tapped out? Isn't it worth the distinction, if we want to raise the spectre of deflation?

Deflation in Japan, I don't know much about that. But I do know that the Japanese have always been notorious savers. Hasn't their government always had a problem stimulating consumer spending? We don't have that problem here, in fact, we have the opposite problem.

Can anyone paint a real picture of what deflation in the US would look like, and why it would be disastrous, aside from deflation as the corollary to hyperinflation. The author refers to it..." The U.S. economy has experienced deflation in the past, but not in a very long time." Was it really that bad? I don't know, I was a kid then.

I live in Los Angeles. Home sales are up because prices are down. Something like 50% of homes sold were foreclosures last month. The market is moving. Sounds like deflation is working to me.

Seriously, anyone with a better explanation.