muses of the moment

February 3, 2009

It’s deflation, it’s inflation, no wait……

Filed under: Inflation, The Financial Crisis — totallygroovygirlfriday @ 1:42 am

You have reason to worry about inflation and you have reason to worry about deflation. We are in the process of experiencing inflation in prices and deflation in debt. This is a deadly combo.

Inflation in prices:

The Labor Department stated consumer prices fell 0.7% in December. The Labor Department said, “Declining energy prices, particularly for gasoline, again drove most of the decline.”

For December the Labor Department stated, “The energy index declined 8.3 percent in December. Within energy, the gasoline index fell 17.2 percent and accounted for almost 90 percent of the decrease in the all items index.”

Excluding food and energy, overall prices increased 1.8% in 2008. Shouldn’t inflation be zero, no one is buying anything?

The food index rose 5.9% in 2008, as compared to 4.9% in 2007, “with grocery store food prices rising 6.6 percent in 2008 compared to 5.6 percent in 2007.” I have noticed that at the store. In fact I noticed that all my insurance bills have gone up, averaging 10%. My electric bill and cable bill basic charges are up too. The only part of my personal budget that is on track for 2009 is gasoline. How long will that last?

Inflation is all around…..in prices (excluding auto gas).

Deflation in debt:

Interest rates are now .05%, negative for all practical purposes, but no one wants debt to buy stuff. They want debt to cover the hole in their balance sheets. Whether it’s a home refinance for the personal balance sheet or cheap government loans for stressed banks.

Deflation is all around……in debt.

These two scenarios will increase in volitcity and become a hyperinflationary depression; this different from The Great Depression which was a deflation in prices and debt.

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