Tuesday, May 23, 2006

Inflation or Deflation?

So which is it going to be, inflation or deflation? Scylla or Charybdis? Tweedle-Dee or Tweedle-Dum? I dunno. People profiting from the housing bubble are certainly hoping for inflation. This respected blogger argues for deflation. If so, cash will be king and your outrageous mortgage debt will be crushing. So place your bets.


Blogger Rob Dawg said...

Yes. Asset deflation, consumables inflation.

May 23, 2006, 1:24:00 PM  
Blogger Chuck Ponzi said...

Yes. CPI Inflation, Asset Deflation. Interest rate movement unmatched in history.


May 23, 2006, 5:34:00 PM  
Blogger rejunkie said...

The Wall Street Journal from last Thursday or Friday had an article that basically asserted that high inflation accompanies any period of high commodities prices. For example, the early 80s saw high oil and gold prices and inflation in the low teens.

Frankly, this might be the savior of the real estate market. A few years of nominally flat prices (that means real terms are dropping 8-10% per year) would probably ease the affordability issue and psychologically prevent a panic selling situation since most people won't really think that 0% gain will, in reality, mean a loss.

In addition, the existing mortgages (at least the ones that don't adjust) will become easier to bear each year as salaries keep pace with inflation and homeowners continue to pay off their hefty loans with ever-cheaper dollars.

Rents will escalate rapidly due to inflation and the high interest rates forcing would-be owners back to the rental market (plus all those folks that had their neg-am-financed houses foreclosed on have to live somewhere).

Perhaps this is the "soft landing" they are talking about?

May 23, 2006, 9:59:00 PM  
Blogger Gasman said...

Deflation and inflation are no longer useful terms. The meanings of these words are now understood to mean some factor of "general" price level change that applies to all things. No such thing exists.

What there will be is a financial crisis with many bankruptcies and other nasty stuff. With Bernanke at the helm over issuance of currency is pretty much guaranteed. Whether you see "inflation" or "deflation" will depend on your own particular situation.

Since many people own homes which are already richly valued and dont go up much more or perhaps fall a little then they might call this "deflation" and will of course beg for interest rate cuts and money issuance.

But then what are we to call the incessant increases in fuel, metals and food prices?

In truth these are the expected late results of 20-30 years of over issuance of paper money. The results of a past inflation that cannot now be stopped.

May 24, 2006, 3:28:00 AM  
Blogger anon149 said...

" as salaries keep pace with inflation"

That a big assumption. In the past salaries increased with inflation but that has not been happening over the last 5 years at least. Wages (real wages) have been going down an are now below 2000 levels.

The housing market is toast no matter how yo cut it.

May 24, 2006, 9:36:00 AM  
Blogger rejunkie said...


There is evidence posted previously here that salaries were static or sagged from 2000-2004. I have not seen statistics for 2004-2006 but judging by record state income tax receipts from 2005, the average state income must be up.

Cite some sources, please.

May 24, 2006, 11:42:00 AM  
Blogger anon149 said...


It's not for the bay area in particular but still...

May 24, 2006, 12:00:00 PM  
Blogger rejunkie said...

Your link points to another bloggers graphic but it since it cites the Bureau of Labor Statistics (not that I could find it there) I thought I would go straight to the source.

This is actual average annual individual pay for Marin County for 2001-2004:

2001: $43547
2002: $45269
2003: $48051
2004: $50539

So, in fact, wages went up 16% in Marin during the last downturn. I am sure they are up considerably from 2004 levels.

Wages increased faster than CPI (which, as we know excludes housing) in Marin even after the dot bomb. I think it safe to assume they would at least keep up with CPI under most circumstances.

May 24, 2006, 10:13:00 PM  
Blogger ecojpr said...

Inflation in terms of prices measured in fiat money.
Deflation in terms of prices measured in gold.

May 26, 2006, 6:02:00 AM  

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