Inflation vs Deflation - Is it criminal?

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

I never paid much attention to my history classes while in high school and I hope not to bore you now. The CPI, which is the Consumer Price Index, fell from a record 5.2 per cent in September to 4.5 per cent in October of 2008. This was a far sharper drop than what economists were expecting. The CPI is the Government's preferred measure of inflation. What was a major cause for such a quick drop? It was driven by the plummeting cost of oil. Gas prices are extremely lower now as in many years. What does all of this mean?

In short bursts, deflation can be beneficial for consumers as it brings down the cost of goods and services. But what can be scary is that deflation can be very dangerous if it were to be prolonged. This is even more true if it's combined with job loses. Anyone been paying attention to the big 3? With the Big 3 in trouble; Chrysler, Ford, and General Motors, there could be some serious job loses in the near future.

Another issue with deflation and the cost of goods and services decreasing in price is that it could encourage people to defer spending. Why is this? They would wait for prices to fall further. Look at people who shop for homes. This would force prices down which would creat a deflationary value that would cause wages to fall and more jobs to be cut as manufacturers and retailers cannot sell their goods.

 

 

debt

 

Now, I am not here to scare you when it comes to debt, inflation, and deflation, but we need to wake up and take notice of this. Here are a few definitions, in which I cut and pasted from Wikipedia.

Inflation : "is a rise in the general level of prices of goods and services in an economy over a period of time. Inflation can also be described as a decline in the real value of money—a loss of purchasing power."

"When the general price level rises, each unit of currency buys fewer goods and services."

"Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply."

 

 

Deflation : "Is the decrease in the general price level. Economists will refer to a decrease in the money supply and credit. Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression."

"In economic theory, deflation is a general reduction in the level of prices, or of the prices of an entire kind of asset or commodity. Deflation should not be confused with temporarily falling prices; instead, it is a sustained fall in general prices."

 

 

So, where am I going with all of this????

Consumer prices are dropping.... In my opinion, deflation is worse than inflation because when nothing holds its value, then you can't get a loan to buy anything...... Hence why so many inside and outside the media are saying that there is no mortgage money to lend. This is not the case at all, which I talk about here. People, mortgage money is still available. And once you buy it, it's worth less immediately... so why would you lend when you know an asset is worth less?  Chairman Bernanke has recognized this... he has cut interest rates. The European Central Banks haven't recognized this as of yet.. The Chinese have not recognized this issue as of yet also and they have their interest rates sky high as if inflation is the problem. Every asset in the world is losing value now, except US Treasuries.  This is exactly what happened in 1932 to 1938. Hhhhmmmmm  What took place around then?  The Great Depression

 

 

On another note about debt, I wrote a post back in January for Active Rain called the 2007 year in mortgage review. I talked about a slight recession and that I felt that we have been in one for the last 3 years. From Wikipedia, a recession is "a period of reduced economic activity."  What all this leads to is robbing Peter to pay Paul in many cases.

 

 

And think about this in regards to a recovering economy... Can a bad economy make us fat? With eggs, milk, and bread costs rising, will fast food and cheaper food at grocery stores lead us to a greater waste line?  McDonald's reported a whopping 11% increase last week in 3rd quarter sales in 2008 compared to 2007.

Also, stressful times can lead to stressful eating. I know I eat more when I am stressed. And with the bad news in regards to the economy and so much more, what could it lead to for you? No pun intended, but this is just food for thought.

 

 

Overall, just things to ponder about. We can't ignore these issues. But at the same time, you can't stop living also. And we also need to be careful of hyper-inflation.

I will say this again, it's a great time to buy now. Home values are down. Rates are still low, in the low to mid 6's. Values will increase in the future. The stock market will rise in the near future. Words of advice?  Don't be the one that sat on the fence to long and missed, kicking yourself.

 

For a very good take on Inflation vs Deflation, please read the Myth of inflation vs deflation by Vincent Bressler.

 

 

 

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Copyright © 2008 by Jeff Belonger

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

TIM..... .  I would agree with your first statement.... and you make some excellent points. Yes, how do you know what's going on, if corporations are raising prices and it could be because they are lining their own pockets at our expense. It's one thing to make a profit, it's another to gouge pricing to make a profit... so I do blame many politicians and I think Greenspan was sleeping on the job at times.

CONNIE..... . on Good Morning America?  Do you know when?  Because I would like to call Good Morning America up and give them some facts, not thoughts or word of mouth. We need the big people in the media passing this kind of information out, to make sure they do it right and not misinformation. I wrote this... poor media outlets and misinformation...  thanks

 

KARL.... . yes, hitting the pause button, but also the panic button...   and you pretty much hit the nail on the head with this comment....

"Basic retail sales for small item goods are not doing so poorly (WALMART)...People need to eat, sleep, and take care of basic needs.  The real losers right now are automakers, dealers, resort's, and luxury items that we dont' really need.  These industries better have sufficent reserves or they're in big trouble (which we see with the automakers, but that problem has been brewing for years)."

In regards to politicians and more of a neutral view?  I don't think we will ever get back to that, unless we have a 3rd party system. The media loves to sell negative info and politicians, even if they agreed with the other side, are to strong minded to lean. They would rather keep it in-house per se. Very sad indeed. Again, 3rd party system is needed... but both the Democrats and Republicans don't want this or will not allow it to happen.

In regards to the Greenspan comment, I totally agree and made that same comment to Tim M., I think mostly because of your comment. And I agree 110%, if the media doesn't change their tune, that alone will bring us down. What's funny is that I made basically that same comment in this blog... poor media outlets and misinformation... 

overall, thanks for your feedback and input, it was much appreciative.

 

LISA..... .  my pleasure and thanks for the compliments... I am glad it did bore to many people. ;o)

RANDALL..... . I am semi confused by your comment... are you saying that the bank that you are dealing with is killing the deal because he is paying off a car balance that is higher than what it's worth?  In any case, give me a call...  609-440-5133   thanks, jeff

CHARLES..... . I would agree that loss confidence can be an illusion... but not now. Do you think so?  This is so surreal. Part of the problem, so many of us say, "it will get better"... sure, but in the mean time, we need to be proactive and do something about it.  thanks

 

Nov 20, 2008 05:17 PM #31
Rainmaker
212,529
Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.

And the solution???   In your humble opinion of course?

Nov 20, 2008 06:59 PM #32
Rainmaker
61,090
Tami Vroma
West Michigan Real Estate Specialist-Five Star Real Estate - Grand Haven, MI
Realtor, Grand Rapids MI Real Estate

Jeff - I don't know about all the rest but the low gas rates sure are giving me a break and letting me think I may be able to make it a little longer!

Nov 20, 2008 10:27 PM #33
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Jeff, excellent post on the potential to go into a depression. Right now with the stock market plunging most people are sitting. I read the sale of SPAM and jello is up. Confidense is at an all time low. When a country addicted to credit we are in big trouble.

Nov 20, 2008 10:37 PM #34
Rainer
225,598
Diane Bell, Hilton Head Real Estate, Bluffton
Charter 1 Real Estate, Hilton Head, Bluffton, SC - Hilton Head Island, SC

Jeff,

Thank you for such a detailed explanation of the deflation issue.  It's something we hear about but don't really understand.  Unfortunately, I wish we weren't hearing either word.

Nov 20, 2008 10:44 PM #35
Rainmaker
593,907
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate

I'd love to see their books and where the money is actually going to. The auto industry is crying but when I go to four different dealers and want to get some numbers they seem to not want to call me back...I guess they ain't doing that bad and I'm going to buy something. People are running to the gas pumps and are storing gas at 197 yesterday...they think its going to shoot back up...what about food?

Nov 20, 2008 11:03 PM #36
Rainmaker
559,938
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Jeff,  I just had to comment on a comment left above because I think it's what a lot of people unfortunately believe is the answer.

All I know is people in general don't start buying cars again, or keep going on vacations, then we're all going to suffer because we will have "self-fullfilled" the doom and gloom predictions of a depression

We got into this mess because people spent beyond their means and spent it on frivolous consumer goods. Spending more on vacations and fancy cars isn't going to solve the problem.  If everyone went on vacation, who would actually be producing anything? Someone has to do some real stuff.  Can we run an economy on most people taking more vacations?

We need to suck it up and work harder, spend less, save more and invest those savings in things that increase productivity.  That's not a platform that will win any elections but it's the reality that we need to face.  You can either face reality, get to work and get through this mess as quickly as possible, or you can deny reality and hope that some mass positive thinking will make it all better.

Nov 20, 2008 11:06 PM #37
Rainer
340,913
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

I could go off on a tangent and rant about what I am reading, but I wont.  Jeff, your article was excellent, and very helpful to those like me who do not have an economic background in education.

My quick fix?  Stop importing goods.  Buy American to save American jobs and the American economy.  Won't be a popular opinion, but I'm not exactly how to be elected Miss Popularity.

Nov 21, 2008 12:18 AM #38
Rainer
208,371
James Wexler
wexzilla.com - Scottsdale, AZ

deflations is generally bad, however, it does not make sense that companies do not lower prices and shrink profit margins to allow the consumer to get through tough times, other products , goods and services need to track supply and demand, the way commodities, stocks and real estate

Nov 21, 2008 01:08 AM #39
Ambassador
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Connie Harvey
Pilkerton Realtors - Brentwood, TN
Realtor - Nashville TN Real Estate

Jeff - I remember exactly because I was delivering 200 boxes of Cereal to the Tennessee Baptist Children's Home. The housemother, Carol, was worried about my business. She said that she saw it that morning. So we're talking about last Thursday the 13th! Give them some from me too.

Nov 21, 2008 04:13 AM #40
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

PATRICK..... . you make a very good point. Now, I have only helped a few on the financing side of forclosures just this year. And I have 2 more as we speak, both waiting for the banks to accept their offers. So I personally don't know that they are selling like hotcakes.  I know many people are bidding on them and then walking away from them after a month, because many banks are taking forever to accept bids...  but would love to hear more feedback from you on this...

Overall, yes, the media needs to hear it from the true professionals and not those that are wannabes... thanks

 

JASON S. ..... . reality....  hhhmmm, what is that?  When you face the music?  Own up to it?  Truly understand it and not assume or listen to false misinformation from the media?  lol  In any case, thanks for the polite comment.

VICKIE...... . no comment or I pleade the 5th...  ;o)  Seriously though, we are near bottom that there will be a rebound, unless they don't pay attention to deflation. Then it won't matter who is in office. Sorry, not to sound negative. We need to stay upbeat.  Yes, we can control some of our own destiny, but the rest of it sits with those that are in office.  thanks

JUSTIN..... . another good key point, that hyper inflation could really hurt us if they keep printing money that holds no true value at times, but is just there to bail us out. That could back fire if not careful with it. Thanks for your feedback and for the polite compliment.

MARK..... . I am not to worried to where people are... we can blame whomever you want. If we want to start pointing fingers, part of this starts with the Clinton Administration. I could go into details, but the bottom line is... yes, a wrong turn and we will meet depression. .. financial depression, aka, the Great Depression.

In regards to congress stimulating the economy???  We need to start from within... we need to stop giving tax breaks to those US companies that are overseas.. we need to make more American made products. We need better education and health care. We need to care for US and not for other countries...  so this has been a problem going back several decades. We need a Ronald Reagan in my opinion..  someone that will put their foot down and not just say what the public wants to hear... Obama scares me in that arena... just my humble .02.

 

CAT..... . yes, the bitter pill is very hard to swallow. I didn't want to say such terms as, "it's bad out there", "it's really scary out there"....  negative phrases. My purpose of this post was to give a synopsis of what is going on now.. giving a clear meaning that is not found in the media, except from some financial experts that will talk about this. But people generally don't want to hear about this... they just want to have someone fix it.. but we need to understand not only the issue to fix this, but the meanings behind some of the issues.  thanks

CHARLES S. .... .  sure, it's hard to stay positive and focused. And it doesn't happen when like you say, that you see high execs get off jets to beg to congress for help.  Shit, where were you a year ago,... they saw this coming. They should have cut back their second homes, their jets, fancy dinners... and they want us to pay for their greed and oversite now?  aaaarrrgggh..  we are trapped, because if the Big 3 fell, I do feel that we would have the next Great Depression, and that is depressing.  But I think if we get smart here with common sense... get the right people in some positions and stay strong, that we will fight threw this.. thanks

 

Nov 21, 2008 05:29 AM #41
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

RUSS...... . from what I know, many parts of Michigan and Detroit has been that way for the last 12 months.  And to go from 200k income to 30k?  Double ouch. Even if you just lost 25% of your income this year, that is enough to hurt you.

JAMES....... . sure everyone is nervous. And yes, a price drop sounds like a great deal. But you can't be going out there to buy things just because it's a great deal. It should be because it was initially part of your plan. Part of the problem as I mentioned above is that many people have been waiting for that great deal to even get better. That not only will hurt them when things go up, but it hurts us as an economy now.

 

ERIC..... .  just this one comment of yours alone is scary... "The entire country may look like New Orleans soon."    That is such a scary thought, but could be right around the corner.

Overall, it is good to see prices back to where they should have been. The higher prices with those so-called toxic loans and the 'don't show me your income and buy a larger house' loans are gone unless you have 35% down. Wall Street and many investors just got to greedy in passing out freebie loans per se. And common sense that you mentioned?  lol   We need more of it..  another pet peeve of mine that has hurt our economy in the last 3 years and has now caught up with us.

 

MORGAN.... . thanks, one reason why I wanted to write about this. As you mentioned, deflation isn't talked about much and if we don't understand it now, it could smack us right upside the head here shortly. Thanks for the polite comment.

AIDA.... . cash is king, yes it is... but so is saving some of it still. Partially investing it, but still saving some.  thanks for the comment.

LOVEJOY TEAM aka BRAD. .... . I won't blame you... lol  We just need an honest business person to run this country, not a politician.  And yes, I agreed with Tim M. also....  thanks

ROLAND.... . keep you posted on which or what? But thanks, this should be interesting, because it's not talked about much. I am sure this will be in the history books in a decade, meaning 2006 to 2008 and the prelude, what led up to this meltdown.  thanks

 

Nov 21, 2008 06:22 AM #42
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

SPENCER..... . I think many of us can do well down the road, if we can keep our chin up. And yes, deflation might not be there, but it's on the verge and if we aren't careful, we will hit a depression..  just my .02.  And yes, Bernanke is keeping us on the inflation side of things, but we still need to tread lightly. In any case, thanks for your input and for the compliment.

MARIA..... . my pleasure and thanks for stopping by.

CASTELLUM.... . are you guys still sleeping over there?  lol  In any case, thanks for the kind words.

TERRYLYNN.... .  my solution?  Go to sleep for about a year... lol  Seriously... that could be a book. But I say that we need to scrap government and start over. Not only to many greedy politicians that tell us what we want, but some greedy ones also. We need stricter rules and safe guards for large corporations. Yes, that is a tough one and would constitute freedom per se... entrepreneurialism at its best. One who takes and assumes risk. The problem here is that it seems fewer are held accountable when they take down a large corporation because their greed interfered with their common sense way of thinking. Again, just my .02. And as I mentioned, I could be here forever.

TAMI..... . yes, the low gas rates are helping the magority out there. But the problem with this, if not controled as I stated, this is one reason why we could go into a deflationary mode, which would basically be the death of us.

 

MISSY C. ..... . yes, consumer confidence is at a all time low. .... but it's been low for a year now and it won't get better in most of 2009, at least that is what I think.  Why do I say that?  We need to see positive numbers and not just in one industry. And the stock market will be a big yo yo in 2009, so that won't help. Watch the government with the help of the media drum up some bs storylines. And if negative, that will be our demise.

On another note, bingo.....  a country that is addicted to credit?  Hell, we all might as well be addicted to crack, chocalote, and a few other things.  Thanks for the compliment.

 

DIANE..... . life would be just peachy if we weren't hearing either word. It would have been like 2002 to 2005 in the real estate market. Not trying to brag, but I have actually done better this year than I did in 2007 and 2006. Sometimes change is good and the strong usually survive... and yes, I don't think to many understand inflation or deflation. And thanks for the nice comment.

 

Nov 21, 2008 03:48 PM #43
Rainmaker
176,383
Rebecca Levinson, Real Estate Marketing and Online Advertising Consultant
Real Skillz-Clear Marketing for Your Real Estate Vision - Lake Geneva, WI

Jeff, Thank you for the breakdown.  Keeping realistic doesn't mean sacrificing positivity, it just means having the knowlege and focusing your business.  If we fall further, which I believe is very possible, I know I will have to dig deeper, readjust further, remain tougher.

I appreciate your frankness here without a "we're doomed" approach.

Nov 22, 2008 01:57 AM #44
Rainmaker
56,569
Patrick Canavan
Keller Williams Realty - Yorba Linda, CA
Orange County Real Estate Voice

Hi Jeff - Here in Orange County CA I have seen properties go up on the market and sold in one day. Granted, the Banks might take a week to get back to you. But I have never waited a month on a foreclosure response, definitely on a Short-Sale. The latest my clients have ever waited was a 1-1/2 weeks.

How good or how bad the Purchase offer is with all the CORRECT paperwork also, determines the response time or even a response at all. There are a couple of variables when wanting a quick response. Of course, if a client is still in negotiations with the Bank a response will inevitably be slow.

As you know a lot of Banks want clients qualified first thru there own sources before submitting offers. Calling on the weekend trying to get a client qualified with their preferred lender who does not work weekends again will take longer only if the agent is not a head of the game.

If you are always ahead of the game,  the REO agents will love you for it.  REO Agents are very very busy, they need to be treated VERY nicely even if they have an attitude with you or do not treat you with respect. I have worked with REO Agents who have been dam right nasty but at the end of the day my Clients get what they want. To many agents are messing up deals because they take things to personally. They can deal with it after the C.O.E.

I cannot stand that when an Agent gets in the way of a Seller and Buyer. You have a seller who wants to sell and a buyer who wants to buy, we should respect that till the C.O.E

There are techniques to Foreclosures in my opinion and I am very successful at it. I have done many Foreclosed Properties and every one I have gotten Termite completed, ALL repairs completed and this is no Joke, new installations, one year home warranties etc...

I think the first thing an Agent should do when putting in offers on foreclosed properties is to "Treat it as a NORMAL SALE".

Patrick

Nov 22, 2008 06:52 AM #45
Ambassador
749,891
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

NEAL.... . yes, the car industry is very confusing. It really makes you wonder. And yes, I want to see their books, unless they have been cooked, just like many in the mortgage industry. Is corporate on a whole just evil?  Makes you wonder... everyone up top has money, but all the large companies are failing with their hands out. And yes, what about food prices that have been going up... thanks for your feedback.

 

TIM M. ..... . you can come back any time to give your input. That is the best part about any blog, is the discussion within the comments... so thanks

You copied this... "All I know is people in general don't start buying cars again, or keep going on vacations, then we're all going to suffer because we will have "self-fullfilled" the doom and gloom predictions of a depression"

I am going to partially agree with both of you.  I don't think by not doing these things will say that it predicts gloom and doom. But I think if we do abandon some of these items mentioned, within reason, that it will hurt our economy. We need to remember that people's income is based on the jobs that focus on trips, vacations, cars, etc etc.

But on another note, as you mentioned, we do need to be careful about this, not to over spend... to save money. And not to spend it just to feel good... or hoping that someone comes along to bail us out. Again, thanks for your input and for your feedback.

 

KRIS..... .  go on a rant about what you are reading?  what are you reading?  Seriously, I would love to know. And it's good to rant.

In regards to this statement that you made.. "Stop importing goods.  Buy American to save American jobs and the American economy."

No, it would not be a popular answer or comment. It's also a very complicated.  I don't even know all the ins and outs... I can only speculate for now. But in some cases, it is good to produce outside the US.... but we have so many issues revolving around this. We do need to keep production in many cases inside the US also. But unless I had privledge to every company and their books... emploment with employees... tax breaks.... promit margins... company executives and what they make a year... bonuses... etc etc... I can't honestly break this down the way it should be. Again, all we can do is assume. But I would say that there is some honesty and truth to your statement, but how much. Thanks for being vocal.

 

JAMES..... . well, in my opinion, it might sound easier than said. It's easy for me to lower my profit margin per deal, but depending on how much, would depend on how much more I would have to do. Now, if I could be guaranteed so many loans a month, I could do this. But with fierce competition that in many cases is false and or misleading, I can't give the absolute best deal. Loan officers that lie to get a deal in the door takes away from my overall profit margin. This can happen on a larger scale with larger companies. But again, there is more to it than this. This is just my opinion. Some call it capitalism... but it comes down to who is actually controlling certain goods, products, and services. This is where it hurts us in the pockets.  thanks

CONNIE..... . well, I need to contact Good Morning America and a few others, like Today...  etc etc.. we need to start getting the media to listen to the real professionals and not the fakes or the wannabees.. thanks

REBECCA..... . I think we all need to keep it realistic, but at the same time, not to panic. And in most cases, as you thanked me for doing, keep a positive spin on these issues. Many of us know that it's bad out there, so no need to keep stating it in blogs. But educating others with definitions, some opinions, but just knowledge in general... on good topics, making others aware, I think is a great start.  thanks

PATRICK..... . I appreciate the time that you took to leave the comment. And your first sentence kind of fits in with some things that I mentioned. But you lost me on the rest of your comment and I am trying to figure out how it fits with the rest of my post. Just curious... thanks

 

Nov 23, 2008 04:56 PM #46
Rainmaker
56,569
Patrick Canavan
Keller Williams Realty - Yorba Linda, CA
Orange County Real Estate Voice

Jeff - You asked for some more feedback on an earlier comment I made on this post.

Below is your response to my first comment:

 

"PATRICK..... . you make a very good point. Now, I have only helped a few on the financing side of forclosures just this year. And I have 2 more as we speak, both waiting for the banks to accept their offers. So I personally don't know that they are selling like hotcakes.  I know many people are bidding on them and then walking away from them after a month, because many banks are taking forever to accept bids...  but would love to hear more feedback from you on this...

Overall, yes, the media needs to hear it from the true professionals and not those that are wannabes... thanks"

I was giving you my opinion on how realtors should approach offers on Foreclosures and how to get speedy responses.

Have I gone off on a tangent. If I have, SORRY.

Nov 24, 2008 03:46 PM #47
Rainer
42,917
Brian Griffis
Realty Choice - Springfield, MO

Deflation is a problem for another reason I have not seen mentioned.  I didn't read much mention of the national debt.  That is the BIG problem we are going to face. Deflation means tax revenue will decrease as the basis on goods that are taxed decreases. Also, fewer goods will be sold in a down economy, leading to a downward spiral in revenue. Furthermore, billions are being pumped into the financial system to prop it up, much of which will be only partially, if ever, repaid. The money is going to have to come from somewhere.  We have given our manufacturing sector to China, and as we have learned recently, our service sector is far from stable.  Where is the money going to come from? China and the middle east are having their own economic slowdowns, so they won't have as much to lend us. We have been living on borrowed money far too long, and now we are trying to borrow our way out again. Luckily, we can probably put off the pain for a while, but our children are the ones I really worry about.  They will have to pay for our borrowing ways.    

Nov 26, 2008 11:06 AM #48
Rainmaker
712,321
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Jeff, I read your post, the link to Inflation v. Deflation, and most of the comments. I am appalled at the general level of knowledge on this subject. Economics affects all of us. If we are not knowedgeable how can we know when we are in danger?

Tim Maitski (who has a couple comments above) seems to be one of the few who really understands the problem.

Inflation and price level could be equated back when we had "real" money (gold and silver) rather than a fiat currency. Our dollars are money only because the government dictates that we accept them as money. It is called "legal tender."

Inflation is (as you allude to in your post) the increase in MONEY SUPPLY not an increase in price level. We are suffering maior inflation right now. Market conditions are working to hide this from us but the truth will be revealed in the not-to-distant future when prices start going up at an alarming rate. The government is creating Trillions of additional dollars which will find their way into general circulation forcing prices up. Deflation is an impossibility under the current economic system.

Everything is a bargain right now. A few years from now prices will be much higher.

Bill Roberts

Nov 29, 2008 02:33 AM #49
Rainer
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Brian Griffis
Realty Choice - Springfield, MO

Don't be too hard on people Bill.  Most people are not economists, but they sure can sense when prices increase.  Inflation today is primarily described as a rise in the general level of prices.  I agree with you; I would argue that it is directly related to the money supply, but, there are plenty of economists and academic articles that would argue against that point.  It is very possible that we will see inflation in the not too distant future as TRILLIONS are being pumped into the financial system.  But, there is one economic principle you may have forgotten.  It is called the mulitiplier effect. When one borrows money, what happens?  Unless one hides it under the mattress (not likely), that money is spent and the person receiving the money spends it again and so on. That is why the economy was so "good" when people were borrowing money. Money keeps getting passed around, spreading the wealth, so to speak.  The problem is, the reverse is also true, called the reverse mulitplier effect.  That is what has been happening in the last few months. Financial institutions have seen their capital bases erode, making them less able to lend and in many cases they are hoarding cash as loss reserves just in case more loans go bad.  So, don't think deflation is impossible, far from it.  The Japanese government has spent untold trillions since the 90's and that country had deflation for nearly 15 years, even with 0 percent interest rates! So, it is possible that inflation will return, but looking at the CRB index, it may take many years just to get back to where we were last year. Inflation will probably not return until unemployment bottoms out, employers start hiring again in mass, banks loosen up on credit, and consumers become more confident.  That may happen next year, or it may take many moons.

Nov 29, 2008 09:55 AM #50
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