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Deflation is not the problem, it's the solution

Expert economists love to warn of the horrors of deflation.  They say that if consumers think prices will go down then they will put off purchases, which will reduce aggregate demand which will also cause prices to go lower.  Thus creating a price spiral which will cause all prices to go to zero and all companies bankrupt.  Only a PhD in econ could come up with something so simple and then never test the theory.  I think Steve Jobs never got that memo.  How do they explain why peole buy so many iPhones when they could just wait a year and the price would go down.

Clearly there are many goods that are deflationary in nature yet consumer still buy them.  So what is the real problem with deflation?  Excessive leverage does not work in a deflationary environment.  You can still have some leverage, think car loan that is 4 years with a 10% down payment.  But you can't get a 30 car loan with 0 down.  If house loans switch to 15 years with 10-20% down that should be adequate in a mildly delationary enviorment which we would be in if it wasn't for Fed meddling.  But won't being able to buy a house on less leverage cause the price to go down?  Yes!  Now on to the good part of deflation.

Deflation as the solution:

If you could only look at one indicator to determine a country's global competitiveness, it would be housing prices.  A worker's largest cost is his house, and the general rule is your house should cost about 3 times your income.  So if a programmer in India can buy a house for 30,000 then you can pay him 10,000/yr and he is happy.  However an American programmer can't get a house for less than 300,000 (on average) therefore he needs to be making 100,000/yr.  Which means to be globally competitve he needs to be 10 times as productive.  But there is no way he can be, their performance is about the same.  This is just a long winded explaination of what everyone already knows.  That most jobs are being outsourced to cheaper overseas locations.  The answer is to have the costs incured by the average american to come down.  Since most of his costs are housing, deflating house prices are the solution.

What is particularly annoying is that this is exactly what the free market wants to do.  But the govt and Fed are hell bent on preventing this.