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Home > Economy
Deflation is a Process, Not an Event
And doesn't move in a straight line...
10/17/2006 4:47:34 PM
“Like inflation, deflation is a process, not an event. It has been sneaking up to the U.S. slowly.”
That's a quote from Robert Prechter’s 1996 book, View from the Top. He went on to say:
- “The U.S. is at the end of the longest inflationary period in its history by a substantial margin.”
- “[This] boom has brought about the greatest increase in stock prices over such a period in the history of finance going back at least 300 years.”
- “Economists are nearly unanimous in their opinion that deflation is highly unlikely.”
An AP story today said:
- “The Labor Department reported today that overall wholesale prices fell 1.3 percent last month.”
- “The Federal Reserve said that industrial output dropped by 0.6 percent in September, reflecting declining production at the nation's factories.”
- “Wholesale inflation plunged by the largest amount in more than three years.”
- “Gasoline prices plummeted 22.2 percent, the biggest one-month decrease on record.”
An AP story back in January said:
- “The trend in the manufacturing sector toward lower pay, fewer benefits and fewer jobs is alarming.“
- “Manufacturing workers are caught in a worldwide economic shift that is forcing companies to slash payrolls…”
- “Anybody who works in manufacturing has no future in this country, unless you want to work for wages they get in China.”
- “You’re going to see lake property, you’re going to see boats, you’re going to see motorcycles hit the market,” he said. “People get rid of the toys.”
- General Motors plans to cut 30,000 hourly jobs. Ford Motor Co. plans to lay off 15,000 workers.
The U.S. Department of Labor's Bureau of Labor Statistics reported that in the second quarter of 2006, employers took 1,213 mass layoff actions that resulted in the dismissal of 251,341 workers from their jobs.
I confess -- I selected these news items to illustrate my point. You may not be feeling the effect of what they describe, but these headline stories were not hard to find. And for many people, they are all too real. Already, individuals are experiencing deflation in major ways.
People tend to associate predictions with events, not processes. Because our culture-at-large encourages brief attention spans, it's confusing to be carried along in a long, unfolding process. If it happens slowly, it is much easier to deny. That is, unless you have lost your job, or house, or both.
Quoting View from the Top again, “In most cases, major deflation is a reaction to what precedes it. Its antecedent is a ballooning of the credit supply by cooperating debtors and creditors during a period of extreme financial confidence that fosters a speculative boom.”
This story was almost too easy to write. If current trends continue, a computer may be able to write it, and I could be the one out of a job.
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