It might be just too late for No Agenda, but it is more entertaining than the Gitmo Nation Roundtable. Still, I listened to GNR and they seemed to have a lack of economic expertise. I wonder if any of these third rate celebs might have the pull to get a decent expert in every once in a while. Hard to say. Both podcasts are on parole.
Nevertheless, I have only recently become semi-literate in the argot of econ-speak, and I'm slowly losing what meager capacity I have given that I decided not to pay for Tom Keene on Demand. But I do know what deflation is and so I will talk about it.
Deflation is that thing which kinda sounds good at first until you think about it. Prices fall and people save money. That's the two cent explanation. But lets go a little bit deeper, which is about all I can go.
We all know deflation to be a bad thing when we think about 'money sitting on the sidelines'. You know the situation. You're living in a small town and you've got a really cool idea for a business. But it's those same 12 rich guys at the country club who have all the money and they play golf all day and don't spend any money to bankroll your idea. So you just sit there on your million dollar idea and nothing happens. One year later you're thinking maybe it's not such a great idea, or maybe it's worth only half a million. Either way, you're frustrated and those assholes at the country club are still sitting on all of their money. Why should they buy your idea today for a million, when you'll come crawling to them for half a million next year? That's deflation.
Same thing if you're a PC manufacturer or the guy who makes flat screen TVs.When the spending public anticipates that whatever will be cheaper tomorrow, then they don't buy today. Stuff sits on the shelves. Deflation.
Credit markets shrivel up in a deflationary period. Nobody wants to risk that it gets more and more difficult for people to earn money. This is hugely important for homeowners and anyone who would buy on credit. That's because depreciation doesn't stop in a deflationary period. Deflation is worse than fixed income. So why would a lender risk selling credit?
For example. Take an automobile scenario. Normally, I'd finance 80% of a new car cost. When it's driven off the lot you lose 10% right there. The lender is still covered. But if the same car with the same features goes down in price 5% next year, then the real value of that one year old car is *way* less. So my willingness as a lender to finance 80% goes way down. That means people will have to save more on average to get a down payment, I'm likely to jack up my loan rates to recover a bigger piece if I have to repo the car, and/or jack up my FICO requirements for borrowers. In short, I'm bearish on the future. That has echoes everywhere.
I'm trying to understand how deflation operates on equity, bond and commodities markets next, but I'm pretty sure I get it for labor and credit markets.
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