Originally posted by lilelvis2000
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There's a good article here
This does not change my stance on deflation. I think round II of a major credit crunch is likely. All of the structural problems remain and the global economy is at least as unbalanced as before, possibly more so. On a credit basis (which is what matters to those not retired and struggling on fixed income), I expect the US to dip in and out of deflation over a number of years as did Japan.
Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis
Read more at Mish's Global Economic Trend Analysis: Hello Ben Bernanke, Meet "Stephanie"
Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis
Read more at Mish's Global Economic Trend Analysis: Hello Ben Bernanke, Meet "Stephanie"
Deflation is a word on the lips of more financial experts these days.
The term refers to a fall in prices (despite no change in product quality or quantity) and is the opposite of inflation. But like inflation, deflation can have a devastating impact on individual pocketbooks and the broader economy.
On the surface, deflation sounds great. Most consumers cheer when gas prices fall or housing becomes more affordable.
But deflation can be too much of a good thing.
"It would be a wonderful deal, except as prices fall on various things, pretty soon the price that is demanded is not enough to pay workers who build the television sets or whatever it may be. Then they get laid off," says Tony Cherin, professor emeritus of finance at San Diego State University.
Such job losses make consumers nervous and less likely to spend, deepening the downward trend.
Most financial experts say the odds of the U.S. entering a serious deflationary spiral are low but not outside the realm of possibility.
"I think we're flirting with it, and I think there are risks that we have to be careful of," says Stacy Francis, president of Francis Financial Inc., a fee-only financial planning firm in New York.
There are several steps that consumers can take now to prepare themselves to survive a deflationary cycle. In fact, a little preparation may help you to actually benefit from downward price pressure.
Following are five tips to help you survive -- and even profit from -- deflation.
1. Get rid of old and new debt
In a deflationary economy, dollars are worth more going forward. That's because falling prices allow each dollar to buy more in the future.
People worried about deflation want to avoid debt because deflation would make paying off a loan even more expensive.
For example, in a deflationary economy, a computer that sells for $1,000 today might carry a price tag of $990 next year. Or, if you buy a car for $20,000 today, you might be able to buy a better car for $20,000 next year.
However, while prices in a deflationary economy go down, the amount of your loan does not.
...
5. Look for opportunities
Consumers who have secure jobs, emergency funds set aside and sound financial plans may find that a deflationary economy is a great place to scoop up bargains.
Falling prices already are creating opportunities. Some first-time homebuyers are finding homes selling for 25 percent less than sellers were asking a year ago.
People beginning to build an investment portfolio now have a chance to buy stocks of solid companies at bargain basement prices.
Deflation also can offer opportunities to save on smaller purchases. For example, travelers may find trips offered at big discounts.
"During the Great Depression, there were a lot of millionaires created. These were people who took advantage of the opportunities that were in front of them," says Doug Lockwood, a Certified Financial Planner at Cornerstone Wealth Management, a consulting firm in Auburn, Ind.
By investing in assets when prices are low, consumers can use an episode of deflation as a rare opportunity to build wealth, Lockwood says.
"Ten years from now, we'll have a large number of people sitting back and saying, 'I wish I would have,' or 'I wish I could have,' and they're going to be talking about right now," he says.
The term refers to a fall in prices (despite no change in product quality or quantity) and is the opposite of inflation. But like inflation, deflation can have a devastating impact on individual pocketbooks and the broader economy.
On the surface, deflation sounds great. Most consumers cheer when gas prices fall or housing becomes more affordable.
But deflation can be too much of a good thing.
"It would be a wonderful deal, except as prices fall on various things, pretty soon the price that is demanded is not enough to pay workers who build the television sets or whatever it may be. Then they get laid off," says Tony Cherin, professor emeritus of finance at San Diego State University.
Such job losses make consumers nervous and less likely to spend, deepening the downward trend.
Most financial experts say the odds of the U.S. entering a serious deflationary spiral are low but not outside the realm of possibility.
"I think we're flirting with it, and I think there are risks that we have to be careful of," says Stacy Francis, president of Francis Financial Inc., a fee-only financial planning firm in New York.
There are several steps that consumers can take now to prepare themselves to survive a deflationary cycle. In fact, a little preparation may help you to actually benefit from downward price pressure.
Following are five tips to help you survive -- and even profit from -- deflation.
1. Get rid of old and new debt
In a deflationary economy, dollars are worth more going forward. That's because falling prices allow each dollar to buy more in the future.
People worried about deflation want to avoid debt because deflation would make paying off a loan even more expensive.
For example, in a deflationary economy, a computer that sells for $1,000 today might carry a price tag of $990 next year. Or, if you buy a car for $20,000 today, you might be able to buy a better car for $20,000 next year.
However, while prices in a deflationary economy go down, the amount of your loan does not.
...
5. Look for opportunities
Consumers who have secure jobs, emergency funds set aside and sound financial plans may find that a deflationary economy is a great place to scoop up bargains.
Falling prices already are creating opportunities. Some first-time homebuyers are finding homes selling for 25 percent less than sellers were asking a year ago.
People beginning to build an investment portfolio now have a chance to buy stocks of solid companies at bargain basement prices.
Deflation also can offer opportunities to save on smaller purchases. For example, travelers may find trips offered at big discounts.
"During the Great Depression, there were a lot of millionaires created. These were people who took advantage of the opportunities that were in front of them," says Doug Lockwood, a Certified Financial Planner at Cornerstone Wealth Management, a consulting firm in Auburn, Ind.
By investing in assets when prices are low, consumers can use an episode of deflation as a rare opportunity to build wealth, Lockwood says.
"Ten years from now, we'll have a large number of people sitting back and saying, 'I wish I would have,' or 'I wish I could have,' and they're going to be talking about right now," he says.
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