15 July 2010

Dee Feat is in Dee Flation, Part 2

[UPDATE 15 July]
Well, the Producer Price Index was just released, and it's in the minus world. Deflation is here. How long it stays is anybody's guess, but if Obama caves to the Right Wingnut Fatmen, the Famine will last a long time. Fatmen like it that way.

Despite the continuing braying from the Right Wingnuts that Inflation is On The Way, Right Now, I'm Telling You, You Must Listen to Me; well, it isn't. Today's CPI shows that Core prices are down, again. The Core CPI has been bouncing back and forth between slightly up and slightly down for some time. They ain't no flation no how.

The Wingnuts/FreshWater economics crew must be having apoplexy. Inflation just won't happen. What they won't admit is that it has happened, but only in the limited arena where all the money went: the stock market. And, in just irony, the stock market has been experiencing deflation the last month or so. And not because there's any real economic reason, but because deflation is a self-fulfilling prophecy, particularly in a stock market. Buying a stock isn't buying any "thing", just a chit that you've bet that the share price will move up (or down) in the future; which future might be a few minutes, hours, days, etc.

Deflation is mostly propelled by the willingness to postpone consumption; in the depths of a Great Depression it will occur because consumers have less income, but that's rare. (The stagnant median income period of Reagan/Bushies would have been deflationary but for all that smart money housing equity, but that's another episode.) For real goods and services, postponing consumption leads to real loss: you don't get to play with the tchotchke. Stock market purchases, on the other hand, are only valuable unless they're appreciating (well, if you're not shorting, but that's for another episode) in value. Not even Buffett made his money from the dividends; he, along with the rest of the trading crowd, was/is into "buy low, sell high". So, if the share prices drop a bit, that's enough incentive to stop buying. People stop buying (take money out of the market) and all share prices go down. Note, that nothing bad has happened in the real world. Just some traders who've decided to enter into a death spiral.

Both the Obamanauts and the Tea Baggers use the line about Wall Street being separate from Main Street. It always has been, and always will be. What happens on Wall Street is fundamentally a world apart, and should be. It has no real connection to the Real World; no more than any casino does.

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