James Blount

Isn't Deflation a Good Thing?

> Mild deflation is no worse than mild inflation. Markets can
> adjust their expectations.
I suspect "markets" may adjust but people, especially the poor, may have less flexibility.
Have I misunderstood the history of the 1930's? - surely, even "mild" expectation of deflation was an intractable and chronic economic condition, more corrosive than inflation expectations?

> It should be apparent in the next couple of year what assets will
> be the primary bubble market.

I envy your clarity, and would welcome any concrete recommendations?

Isn't Deflation a Good Thing?

Deflation is a contraction in nominal growth. Hiding greenbacks under the bed gains more value than building a business. Debts grow no matter how much a person works. When debt levels are high, deflation is profoundly destructive.
This is BAD.
Disinflation is when prices fall, though nominal growth may remain positive. This situation may occur, but is far too close to deflation for comfort.

Worry about excess money when the worst of evils, deflation, is gone.

Banks and Consumers Are the Problem, Not Bad Assets

With financial markets stabilising, falling realised volatility and likely further cuts in cash returns, cash-heavy investors are likely to begin an extension of risk horizons.
This should relieve near-term corporate liquidity pressures. However, we need an acceleration in private investment capital growth - though the group-reinforced psychology of fear and uncertainty will inevitably take many months to alleviate.
However growth in total investment should remain positive; any private investment shortfall should be offset by public investment.
US domestic growth should not shift into a long-term slide, given that government and monetary authority activism will be extreme in the medium-term.

While I believe Paulson's move is an improvement on TARP, the capitalization of the old banking regime stymies the entry of new and better banks. The old regime is impaired as a transmitter of monetary impetus, but new entrants cannot be created quickly.

As for protecting yourself and your family, go back to school as quickly as possible. Education is the product most-valued by our trade-surplus partners. Our value is in our knowledge.