Wikinvest Wire

OMG!!! It's Deflation!!!

Wednesday, November 19, 2008

Those of you who have seen the chart below in these pages over the last year-and-a-half might have already guessed what it looks like after this morning's dramatic plunge in the consumer price index - it's now screaming DEFLATION.
IMAGENot that there's any real significance to the fact that it's screaming deflation.

As noted here yesterday, in a world full of fiat money, "deflation" is nothing more than an amusing side-show to the much more important financial troika of global deleveraging - collapsing asset bubble - global reflation, a sequence that has now been set in motion.

It won't be pretty to watch, but, in the end, you'll end up paying much, much more for nearly everything, everywhere. That is, once the "chain catches the sprocket".

As for the chart above, a simple substitution of the
Case-Shiller Home Price Index for the nefarious owners' equivalent rent component in the Labor Department's nefarious Consumer Price Index reveals a year-over-year inflation rate of minus one percent.

That can't be good...

About the only thing that was keeping this measure of inflation/deflation out of negative territory earlier in the year was $150 crude oil.

Now that crude oil is closing in on $50 a barrel and there seems to be no end in sight for home price declines, look for this to dip further into negative territory next month.


Chuck Ponzi said...

No matter how much I want to, I won't say I told you so.

Chuck Ponzi

Tim said...


I just don't know what to say that I haven't already said in a manner that you apparently don't understand.

Anonymous said...

Tim!!! How can you not see this?

"A deflationary depression is a very real possibility," says Ed Yardeni, an economist who heads Yardeni Research in Great Neck, N.Y. "We're now experiencing a dangerous negative feedback loop between the problems in the credit system and a downturn in the economy. The policymakers around the world are attempting to break that vicious cycle."

This is the "deflation abyss" you've talked about ----- it's here, it's now ------ we're all gonna die --------

Anonymous said...

How hard is it to understand? The credit is cut off, so people can't buy stuff. When companies can't sell their "stuff", they lower the price to stave off disaster. Eventually they go under anyway (circuit city, etc) but until then people will sell assets (homes, cars, etc) for less than before and businesses will provide services for less.

As soon as the excess capacity is sopped up, the flood of fiat money will wash over us like a tidal wave and everything will start rising in price again. But it will be NOMINAL price.

Anonymous said...

now i'm really confused

Anonymous said...

Tim, a story idea:

Did you that SiPort CEO killer was a real estate investor?

Ex-SiPort engineer formally charged with murders; slain CEO's family gathers
1. The engineer owns more than a dozen investment properties whose value has apparently diminished in the real estate crisis.
2. Karen Cai, a professional ping-pong player and a member of the San Jose-based Silicon Valley Chinese Engineers Association, who tried to shed light on a possible motive for the shootings. Cai, who first met Wu at a party ten years ago, said a mutual friend recently told her that Wu had often complained about his boss.
"Before, his boss was good," said Cai, apologizing for her English. "His current boss, no good for him."
3. One coment in the forum states:
Initially, I felt some sympathy for the guy…after all, his wife was laid off by Sun a few months prior, and now the whole family was deprived of the only source of income a month before Christmas in a crashed economy. The reason and the circumstances under which he was fired also seemed kind of questionable. Well…that was before I found that he was just another scumbag real estate flipper who flipped out due to no gov't bailout and house values no longer doubling in value every 2-3 years. Realistically, this guy was probably in the hole by anywhere from $500K to over a mil. With 19 underwater properties, I can certainly see how his job performance would have suffered to the point where the management found it unacceptable. I totally feel the victim's family the and the perp's family who will have to deal with what he did as well as creditors pounding on the door day and night.

P.S. I hope he gets death penalty!

ndd said...

Thanks very much for your work on this graph over the last 1 1/2 years.

While there is nothing inherently different about a negative vs. positive inflation number, the fact is, at about -1.5% deflation, in the past markets and economies have started to behave very differently than with inflation. Think of it like a guy in a barrel above Niagara Falls. If he goes over the Canadian falls, he probably lives. If he goes over the American falls, he will absolutely die. At about -1.5% deflation, you reach the dividing point where in the past it has almost always meant the barrel is going over the American falls.

Chuck Ponzi said...


Don't take things so personally.

Everybody's down. That's what a depression does. Everything falls in value.

Apparently, I didn't understand, if I understand your post now.

Never can be sure.

Anonymous said...

Bailout 2008, a poem by David Jeffrey

Like a bloodied warrior,
laying broken and torn.

Like a dying soldier, hopeless and forlorn.

But the blood, it be green,
the color of money.

And the soldier is an economy,
and it is anything but funny.

Broken are it's people and shattered are their dreams.

Thanks to the ultra rich and their full proof schemes.

It is a tragedy with more pain to come.

Finance will be Hell, and their wills will be done.

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