One of the most flawed arguments in the economic world right now is that there is deflation.
People think that because housing prices are down about 35 percent to 40 percent on average, and we have contracting credit and low rates, there is deflation.
However, recent information has shown that the average price of a Thanksgiving dinner (which affects both poor and rich) is up 13 percent year over year thanks to higher turkey prices. Gasoline is starting to creep up again. Crude oil prices have recently topped $102.
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Deflation is a myth. I wonder if these deflationists ever leave their houses and go shopping or fill up their tank with gasoline. Prices are going up everywhere. Despite their recent pullbacks, most commodities prices are up huge in the past three-, five- and 10-year periods. Prices of education and insurance also have surged.
OK, a flat-screen TV has gone down in price but that is due more to commoditization than deflation.
We all know that the cost of living in our daily lives is going up. Isn’t that what inflation really is?
We must remember that interest rates at the moment are not reflective of inflation or deflation but rather of the ability to print money.
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In nations like Italy, Greece and Spain, they have no independent central bank and are at the whim of the European Central Bank. Therefore, rates are going up not because of inflation but rather because of the perceived default risk.
In Japan and the United States, officials can print money to buy their own debt so there is no default risk. European countries cannot. As the European Central Bank officials are also more concerned with inflation than their counterparts in the United States, they are less inclined to print money, hence the higher default risk.
Therefore, low rates are not indicative of deflation, either.
All you have to do is look around. The prices of everything from food, insurance to gasoline are way up in price. Inflation is rampant.
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