I was reading a blurb on the fact that "deflation my be detrimental to our economy...if it isn't inflation, it is deflation.

What is it---and why is it such a danger?

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Deflation is the opposite of inflation. Deflation, things go down in value. Sounds good for those with no debt. However, if you just bought a new f150 and paid round numbers $35000 for it AND you are making payments on that $35,000. Another person at todays deflated prices may buy the same truck for $30,000 and you will be paying more for the same thing. If you purchased a house 2 years ago and paid $250,000 for it. Today it may only sell for $200,000 but you are still paying the debt service on $250,000. You'll be paying for something that has gone down in value but paying the high price for it. We've already seen that in the housing industry where folks owed more than the house is worth and just walked away from them. That's the bad side of deflation- folks walking away from their debt. Somebody somewhere is going to have to make up that money. That's what the mortgage bailout is about. Frankly, it's about this countries morals towards debt- there isn't any. If folks don't want to pay- they don't. A persons word doesn't mean anything anymore. A hand shake was the worth of a man when I grew up. It means nothing today. It's every man for themselves and screw you.

 

i agree labnerd.. i have a few tenants that have that attitude and it annoys me. people just walk away form the responsibilty and bills and have the" screw you what are you gonna do about it" attitude.

 

Basically, they see no incentive to finish paying for their 250k house that is worth 200k (that they probably couldnt afford in the first place). So they walk and leave the lender holding the bill. When that happens enough lenders start giving out less loans, others suffer the credit crunch, business have trouble because they can't get loans, people buy less because of the lack of credit, businesses fail. It's a vicious cycle and then the government steps in and uses taxpayers money to bail big businesses out and prays it helps.

 

It is also times as these, that the rich get richer , and the poor get poorer.
The people that have already aquired large sums of money, invest in the depreciated realestate. When the economy makes a come back in a few years, it puts them in a position of having more money.

 

People have less money/credit and buy less goods, (many they didn't need anyway) businesses cant afford employees and lay them off. Less have money so less buy goods, more loose jobs. Perpetual spiral down directly related to employment and available credit.

Credit and credit card laws were rewritten and have been easier to obtain mostly thru subprime loans of all sorts which gives the market Credit/credit cards with high interest rates. The purpose of credit/credit cards has changed over the years from needs to wants. For a number of years people have been buying things with credit cards that they should not have and now the debt game is up.... which is also a cause of deflation.

The economy has been fake for some time because of credit/subprime credit of not only homes but all commodities. Now it's time to pay for playing.

 

This pretty much sums it up perfectly.

People buy cars based on what the "Monthly Payment" is. That's stupid. You just paid 35k for a vehicle that's worth 20k. You figure this out when you try to trade it in or sell it yourself.

They got the payments so low by stretching them out over 7 years and super low interest rates.

This goes for TV's, appliances, and especially HOUSES!

With inflation, comes Deflation. It's just the cycle a Capitalist society goes through. And Yes, you can make money in Both markets..

A lot of people made a LOT of money the last 6 years, now a lot of people are going to LOSE a lot of money the next one or two.

Hopefully you didn't buy a 100k house for 200K, and can afford to Honor the financial contracts you've entered into. I know I can... Sadly a lot of people Can't.

 

The low intrest rates and subprime credit got people into large purchases that they could not afford at this moment in their finincial lifes. Perhaps in several years they could afford these large purchases with saving and increased income that comes with job experience.

the banks, credit companies increased their sales through these marketing stratagies, and they made money at it. The one over looked draw back is thet they were selling tomorows customers today, when the consumer was marginally able to purchase the large ticket item, ( housing and cars.)
Regardless, with a down turn in the economy and the lack of qualified clients, the economy stalls. Those that were marginall buyers are spending all their income to just keep afloat ( if they are not being foreclosed on). With the lack of left over money after the bills ( discretionary income) the extra spending is gone. If 5% is in theis position that will reflect on the economy.

 

Everyone including Banks, Stock Market, Businesses and Government have been spending ahead with credit for quite some time.
Figures looked good but were artificial. Credit got called...
Now all will slash/deflate prices (Government cutting taxes/stimulus packages) in a desperate bid to make money any way they can.

Some think economics cant be dumbed down...
They are dumb.