Deflation Issues


Deflation Issues

This site explores economic changes over recent decades & anticipated directions.

1. Deflationary phases usually manifest the following.
Increasing agricultural commodity prices; Increasing industrial commodity prices; Increasing stock prices; Increasing consumer prices; Increasing interest rates; Increasing employment; Increasing bond prices.

2. The global economy is in the early stage of a major deflationary phase. Today’s deflation is being forced by the dissolving of nation-state boundaries, the free flow of information via the Internet, development of computer-based manufacturing equipment that can be set up and operated efficiently in many civilized nations, and the abundance in those nations of inexpensive labor not needing skills and benefits. True or False?

3. This deflationary phase cannot be stopped and may barely even be temporarily slowed by protestors, terrorism, or bad economic policies. True or False?

4. Traditional actions — including adjusting rates, adapting mechanisms of intra-bank dealings, & changing the money supply — applied by central banks such as the Federal Reserve Board in the US are becoming less meaningful and will continue to decline in impact. True or False?

5. Money will always be deployed where it most likely will be most effectively exploited for profit. This process may be slowed and refracted by war, but it will always take place, even if the result must be achieved clandestinely and with additional overhead costs. True or False?

6. An inflationary phase was initiated in the early 1970s by the confluence of war, US dollar devaluation, floating gold valuation, and global political instability. This inflationary phase resulted in severe price-value relationship dislocations starting in the 1970s and extending well into the 1990s. Consumers and business people who came of age in the 1970s and 1980s developed abnormal price and cost expectations. People expected price increases. The vortex of this inflationary phase was damaged and started to deflate in 1981. The cause of the slowed pace of inflation was the Fed’s unceasingly applied increase of interest rates going as far as needed — over 22% prime — in 1981. Breaking inflation required consistent pressure and public understanding that upward rate pressure would be applied unrelentingly until inflation was broken. The need for that procedure demonstrates the massive momentum of the US economy as manifested by price movements during inflationary and deflationary phases. Once started, it requires several years to slow and decades to reverse. Inflationary and deflationary economic modes are firmly planted in people’s psychologies. True or False?

7. Impact of the Phase Shift Theory: It is difficult to contemporaneously perceive, understand and then accept that a transition period within the inflation-deflation cycle actually represents a changeover period. A changeover period wherein the waning phase, either inflation or deflation is waning, is often perceived as merely a price adjustment soon to be reversed back and putting the economy on track of the major phase that had been in effect. Often a phase — inflation or deflation — is so persuasive and so long in duration that most people come to believe it is natural and, therefore, will not dissipate. For example, the end of yesterday’s inflationary phase may not be perceived and even if perceived, mistrusted by many who believe in the phase shift theory. They resist believing that today inflation is waning and deflation is waxing. True or False?

8. Some specific benefits of deflation accruing to most people over time include: Additional jobs; Lower consumer prices; Better quality consumer products; More plentiful consumer products; Improved educational opportunities; Improved efficiency of scale in manufacturing; Political change; Higher standards of living; Purchases may be deferred to take advantage of future savings.

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