I am a pretty simple person. Even in my views toward markets and the like, I want things to be pretty simple and straightforward. I see inflation as prices go up and deflation as prices go down. I hate all of the contrived arguments people use to make their arguments work.
For example, in the past five years we have seen gasoline, insurance, education and food prices all go up. Sounds like inflation to me.
About the only thing down is housing prices and that is more of an asset than an input cost. In addition, most people bought at the top or had to default or can’t get access to credit now that the market turned down so they are not even benefitting from lower prices in housing.
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Deflationists tell us there is deflation because there is a contraction in credit. Yes and one day, hell will freeze over or pigs will fly.
Sorry, but that contraction in credit argument does not hold water. Right now we are seeing inflation and huge amounts.
In the early 1990s, the federal government decided to change the way they reported inflation. Basically, to make a long story short they decided that food and energy would have less of an impact. This caused the inflation rate to drop. Which helped the government's budget, as most outlays are linked to inflation.
John Williams of shadowstats.com tracks what the inflation would be if the old method was used. It shows us that inflation would be running near the double digit levels of the 1970s.
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We must remember every time there is a financial crisis or downturn the government fights it by printing more money! This is inflationary by nature.
Whenever you hear the word deflation being used, please remember that most of the costs in your life are going up. We are going through highly inflationary times, even if there is a contraction in consumer credit.
About the Author: David Skarica
David Skarica is a member of the Moneynews Financial Brain Trust.
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