Tags: dave | skarica | deflation

The Deflationists Just Do Not Get It

By David Skarica   |   Thursday, 13 Aug 2009 01:34 PM

Recently, I have seen some interviews with some prominent deflationists. These are people who believe that consumers cutting back and destruction of credit through declines in asset prices will cause a deflationary spiral, and thus prices will go downward.

But, remember, stock prices going down and housing prices going down do not equal deflation. The technical definition of deflation is a decrease in the money supply, which we are not seeing with all of the monetary printing and fiscal stimulus.

Also, sure, housing and stock prices have gone down. Are your education costs going down? New York City just raised the price of a subway ticket a few months back, postage stamps will continue to go up.

Yes, oil has fallen from the heady levels of last year, but $70 oil is still a lot higher than where it was five years ago. By many estimates the CPI doubled from 1999 to 2009, so even a 50 percent drop in prices would just take us where we were in 1999!

Therefore, other than convoluted wave theories, there is no sign of deflation whatsoever. In the real world, prices are going up.

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Recently, I have seen some interviews with some prominent deflationists. These are people who believe that consumers cutting back and destruction of credit through declines in asset prices will cause a deflationary spiral, and thus prices will go downward.But, remember,...
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