Nice theory, except most people won't have the money to buy those cheaper goods because there will be no jobs, and no money.  Try reading some history, like histories of the 1930's or 1890's, two periods that saw a decade of deflation, and then maybe you can contribute an intelligent thought to this discussion instead purile drivel.

Have you ever heard of self employment?.

I do not see anything wrong with Deflation. Many things are way overpriced as it is.   I also believe the threat of layoffs and lower pay is just that, a threat. Sure they will lay people off but they will not have to. I guess they will do anything to keep the CEO paid eh?

Sounds like more of the same "The sky is falling!" type bullsh!t we have heard for a while now.

Deflation is a good thing. The Dollar is becoming more valuable. Sure, companies will make less money but that money will be more valuable. It also means that the people who have billons will be worth more. Which also means people who have thousands will be worth more and so on. Countries like Mexico ad Zimbabwe have outrageous inflation and their money is worth nothing. In Zimbabwe the American dollar is worth a couple billion of there dollars. On the other hand, in Europe the Euro and the English pound are both worth more than the American Dollar. With deflation we will see our Dollar become moe competetitive with the Euro and the Pound. We will be able to buy more goods with less money and poor people will be able to save more. So in essence.. quit your bitching, deflation is a good thing. Inflation is a bad thing.

Stone is so right. More silly "The Sky Is Falling" bull from the government.

They want us to be shaking in our boots so that they can still billions from us while we quake in fear.

It's insulting.

THERE IS NO ECONOMIC PROBLEM.  NONE.

There is an economic problem of massive propoerions, but you are right, this financial crisi is being engineered so the elite can steal billions of real assetts fo5r pennioes on the dollar.  but the economy is a different issue, we are becoming a banana republic through our loss of manufacturing and fascist govt/corpocry.

This is a stormy, gray day here-your comments didn't help:(

even though, deflation can cause increased debt obligations, deflation can bring with it increased consumer spending, something that our economy desperately needs right now

I know how horrible this sounds, but it's true.  far too many of us will be out of work until we demand as consumers that not all of the work be done overseas.  we will continue to pay far too much for some things no matter how far the price drops, until we separate ourselves from at least some of our wants. You may need a car, but you don't need the one priced at $35,000.  You may feel you need a tv, but you don't need one that costs $5,000.00. You may want the land line and the cell phone.  Okay, but that means you don't buy a $5,000 and you leave that Garmin on the shelf.  And yes, you may need a cell but do you really need the one that costs $300.00?

I believe everything is way overpriced to the point its price gouging(SP) the 1,200 dollar plasma television MSNBC stated should actually cost 150 bucks in my opinion.

The stock market dropped by 40% and is now at the level it was in 2003. That means under Pres. Bush the stock market grew by 40% in less than 5 years, which is an amazing economic performance. The mortgage crisis was brought about by politicians (mainly democrats) forcing financial institutions to give a mortgage to anybody without any money down. As far as "Bush's frat buddies" just wait and see "Obama's frat buddies" (same Ivy schools graduates).

You site only part of the problem with the economy. You don't mention the lobbyists that really run things.  you don't mention the fact that the real cause behind the costs of things isn't better employee benefits or even more employees, but paying stock holders.  but most of all, you don't mention the fact that consumers were charged more and more for goods, and we the people were unwise enough to pay it.  And now we'll pay for it.

These "no money down" loans were paid for charging the borrower points up front-just one of many predatory practices of mortgage brokers. For example, for me to refinance my high interest equity loan into a fixed interest loan I would have 3% added to the cost of my mortgage. These "closing costs" have contributed greatly to the over-valued homes of today. Banks can choose to accept less profit on mortgages or loose money to bankruptcies. They always had that choice. Borrowers pay for mortgage insurance, not the tax payers.

Anyone who took a no money down interest only loan to buy a house they could not otherwise afford deserves what they get. Yes, the criminal at the bank should never have given the loan , but what ever happened to personal responsibility? I go to work every day to provide for my family of five, we live in a small 3 bedroom house that my wife and I wish was bigger.  Perhaps we should move to a bigger house we really can't afford and then I could count on the government bail me out  like all of the other fools who over extended themselves.   The bottom line is that I choose to live within my means.  I may not have that mansion on the hill but I have what I need. A roof over my familys head and food on the table.

The problem with the economy is too much credit. The closer an economy is to "cash and carry", the healthier the economy is. Wall Street and the many thousands of unscruped , greedy people who work in that environment, have distorted investments and screwed over the IRA and 401K owners, to their own benefit. A few short months ago it was reported that many brokers received million dollar bonuses, and what a good thing this was for high ticket cars, condo's, boats etc. The wisest thing for politicians to do, would be to let it all fall down. The wall street house of cards is so crooked and twisted and immoral, that the corruption needs to be wiped out. Yes, the poor people who have lost their IRA's and 401k's will suffer. But they too wanted to get rich quick and ride the wave of ever rising stock prices. Gleefully they would look at 14% increases in their portfolio, and an additional 14% went to the portfolio managers. Where does the increase in stock value come from? Everything has to be paid for. Who will buy the stocks from the retirees who must begin to liquidate their IRA or 401K as they enter retirement. I know of several wise and cautious people who would only invest in Money Market CD's or bonds, when their greedy friends, pooh poohed them for being so conservative. Now they have their money and their interest, intact. The stock market is not good for the economy, it is not good for investors, it should be dismantled and outlawed. GM, Chrysler and Ford must stand on their own. I don't see any proposed or asked for bailout for Toyota, Hyundai, Nissan etc. Let common sense and reason prevail, let wall street crumble, then what is important will be valuable, what is essential will survive, reality will sink in and when the crying and whinning is all over, the nation will be the better for it.

larry, I dont doubt what you say, and I am one who doesnt understand.  I would love to have a real explanation from someone who knows.  All I know is that when you are a working class person and all you can do is buy the necessities, food, gas, pay electric bill and phone and either rent or home payment then deflation doesnt sound bad. When I think of how much better off I am than most, I almost feel guilty, house paid for, kids grown. Well I am sure I will find out how foolish I am wanting the poor working class to be able to eat.

I think that some of us understand, but also understand the this is a necessary discomfort. The market goes in cycles and this is the beginning of a low point on the chart. Not a fun thing, but a realistic and unpreventable reality.

So... why is this an issue? Complaining does absolutely no good and people will not buy what they cannot afford, no matter how important they are told that it is to do so.

deflation will only be devastating for american "consumers", who have relied on debt based assett overvaluation of their homes to continue their debt/credit lifestyles.  Otherwise, falling house prices will be a blessing for many others who weren't dumb enough to leverage away their futures for a small parcal of land and particle board.  Unfortunately, inflation is likely to set in for food and energy, as the bailout money created starts to trickle down to the masses.

Really scary stuff!   Deflation is a sign that the economy is in dire straits.

Not exactly the first sign we've seen.

The free market would dictate that consumers who have been beaten and raped by obscenely and artificially inflated prices for the necessities of life will spend less as a result, and that will by definition push prices down across the board.

Did oilmen and economists really not realize this would be the result of the freewheeling inflation of fuel prices these past few years?

When oil prices go to 140/barrel and then fall to 50/barrel you can call it deflation, but it is not. It is speculation. When prices for products made in China fall, it simply means the importers are making less money. It is not deflation, it is supply and demand.

When food prices start coming down (not happening), then start to worry.

It is not that we don't understand Larry.  It is that as many of us as possible will take advantage of that tiny window where prices are lower and before we lose our jobs and can't find another one.  But for the record, i don't believe you can have a healthy economy based on people making way too little and paying way too much for goods and services. Everyone paying far too much for everything helps a small handful of investors but it is not a true indicator of economic health.  at least not any more........

Larry C, that's because most americans are completely ignorant of history.  I suggest before the morons here start talking about how great deflationary periods are, they should read about some of those periods, like the 1830's and 1840's when bankruptcies drove hundreds of thousands of americans into the western wilderness to evade debtors prison (half the 'heroes' at the Alamo had run from overwhelming debts in the US), or maybe the 1890's when William Jennings Bryant ran against Wall Street and a gold standard that he said was putting midwestern farmers and labor on a 'cross of gold' (many midwesterners and westerners wanted the the US to expand to a gold AND silver standard to inflate the money supply because there was so little money in circulation), and of course the most recent deflationary cycle, the 1930's, which took a world war and more than 100,000,000 dead to finally bring to an end. Deflations are harder to stop than inflations and more socially devastating, and, longer lasting.

There are free government web sites explaining how to start and run small business, qualify for tax deductions and create new jobs. It is up to us to use them. Deflation is change. It does not mean doom.

I disagree with you Larry,

I believe in my opinion that the only ones who will be hurt in deflation will be the bloated CEO's.

sometimes you need a deflationary period to correct the economy. inflationary polices dont always work.

I am a single mother of 2 and one of my sons is a freshman in college. I'm making $26k per year -  I don't own because the banks say I don't make enough (credit is great) so I pay $700/mo in rent, my gas & electric is if roughly on average $250/mo, car (insurance & gas) $$220/mo, food about $300/mo..I bring home (after taxes) $1772 oer mo so I usually have about $52/mo left over. Now what about clothing, shoes, what if the car needs repairs, etc.. All of you who who keep talking about the long run.. I can afford to worry about what's gonna happen in the long run. I appreciate the little extra I have  today!!

RHAN AMEN

What kind of idiot are you, as well as what kind of so-called minister?  Deflations are like hyperinflations, the rich have the resources to wait it out and the rest suffer privations most people today can't comprehend.  This doesn't mean lower prices, this means no manufacturing, no jobs, no money - this means that even pennies count, because you don't know where the next penny is coming from, or if it will ever come.  And, if you think wages will meet prices you are truly delusional - as prices fall, wages will fall far faster.  Just read some histories of previous deflations like the 1890's or 1930's when workers in order to have ANY money coming in accepted 20-40-50% wage cuts, and this WILL happen again.

Tom if you are that scared, start a self employment workshop.

"The feds force us to consume and not save". Can you explain?

You sound like a child.

I see what your saying-the feds forced my neighbor to go by that $52K vehicle and move into the $300K house when they borrow the money from credit cards. Wow-I owe $9k on my car and my house is almost paid off, I must have not got the memo to "CONSUME and not save". 

TM-GA, I hate morons like you who blather 'well I saved so it's not MY problem'.  Did it ever occur to you that the only reason YOU could save as much as YOU did was all the rest of those spenders out there actually GROWING the economy?  What do you think the economy would have looked like without all that spending for the last 30 years?  I bet it would be at LEAST 25% SMALLER than it is today, our growth would have been more like the anemic economy the US enjoyed the last two decades of the 19th century, when GDP averaged 1.7% (by comparison, the 1930's averaged 1.9% GDP)  The problem was people were forced to spend their savings and then pile up debt because repub policies matching the policies of the 1920's (give the lion's share of productivity to the rich) diverted most of the productivity gains of LABOR into the pockets of the RICH (excepting the 1990's when that trend flattened), and we all know how great those 1920's policies were for most Americans in the 1930's.  What we need is to releave the rich of their illgotten gains, redistribute that money much as we did in the 1940's and 50's and fatten up the purchasing power of workers in this country with REAL wages, wages that allow for both the purchase of goods AND decent saving.

what we are going to see in 12-18 months is not deflation but hyperiflation the dollar is going into the crapper to pay for all the spending the govt will print print print then the

value of the dollar will begin to wane. the govt has no choice. it is either depression or

hyperinflation.   which would u choose?

But deflation occurs due to significantly reduced demand for products which then translates into pervasive job loss. 

America no longer actually produces much in the way of durable goods and useful products.  (This is the only plausible reason for even considering that the taxpayer bail out the Big 3.)  Instead we are a service-oriented economy which does not produce but consumes.  When consumption declines or stops altogether, demand falls precipitously as we have seen with retail sales and gasoline, and deflation ensues automatically.

Inflation is not "baked in the cake" because the fiat money the government is printing is being dumped into non-product producing areas of the economy -primarily the financial sector.  That false "currency" is not driving up prices, because most Americans are not buying those "services".

After deflation, then we can begin to talk about inflation.  But inflationary cycles take a long time to become really troublesome, especially after deflationary cycles which cause economic stagnation.

nice points, but not all correct.  there are essentially 2 possible outcomes

1) Inflate our way out of this meess, which is not likely to work.  But this is the likely avenue the powers that be will pursue.

2)  Watch the economy disintigrate.  You are right, we no longer produce anything, and we our consumer based economy based on growing debt has finally been exposed as fraud.

Inflation will likely occur either way as the temprary overvalution of the USD evens out, and the USD falls at least another 30%. 

Well, it remains to be seen how it will play out, because we are dealing with conditions never seen before in the financial history of our nation.  Our present conditions do not precisely equate to the 30's nor do they precisely equate to the conditions of one of our worst recessions -that of the late 1970's, early 1980's. 

However, it is interesting, and maybe predictive, that no matter how much "money" has been dumped into the financial markets, still, the price of both manufactured goods AND commodities as well as the purchase of services of all types is falling rather than rising. 

Consumer demand -and the lack thereof- are powerful forces not only in our economy but in all European and Asian economies at this time.

Yes, you are right.  Refgardless of the markets machinations, the fundamentals(terrible) of the US Economy have not changed.  Things here will go from bad to worse as we make nothing, and have lost our high paying middle class jobs for the most part.  This will take a decade or longer to recover from all the mal investment and debt.  If we recover. 

Frankenberry, I suggest you check ALL commodities out there.  Anectdotaly my cousin and her husband are putting off building a new house on their property (they do have the money and line of credit for this) in part, because one is a CPA and the other an investment accountant, they have seen commodity prices sliding, for lumber, for concrete, for copper, for steel and so on.  And, even gold and silver have fallen about 35% in the last two months in value - gold from around $1100 to about $700 and silver from $40 to $23 - and these are the reserve commodities, the failsafe investments when all else fails.  Property is already at the level it was at the start of the bubble, and nobody really sees a bottom yet.  And food is dropping too (not yet in the super markets - but sides of beef, corn, wheat, soy beans, etc..., even with the damage done to Iowa are at prices half of what they were 5 months ago - in fact one of the major corn ethenol producers just went into bankruptcy because they contracted to purchase corn for twice what it is now worth, effectively making it more costly to produce ethenol than they can sell it for)

Tom, I dont want to pick on you, but you keep spouting wrong facts.  the housing bubble is nowhere near the bottomn, the prices are still nowhere near 2000 prices.  The ethanol ndustry was a hoax to begon with, an invented bubble that was set up to fail.  Corn was in a mini false bubble all by itself as a result.  your gold and silver prices are not correct, and the rpices you will probably quote are comex paper prices, but as i posted to you earlier, try to actually buy either one for the comex paper price.  you will see there is a massive disconnect between comex and reality.

Food is not dropping in any supermarket, anywhere, nor is it likely to anytime soon.

we will see deflation of what we own, ie homes, sticks, ect, and inflation of everything we use and need on a daily basis, ie, energy, food, ect. 

Tom, I appreciate your inputs, but you do not understand the fundamentals of the economy. 

This is almost as stpid as the gas prices going up then down. There was a huge mass of following behavior. Bush's fear mongering made many fear and try to hang on to security, old order and conservative idea. These 'me' based behaviors can be self fulfilling bunker mentality. When old patterns don't work, it is time for a leap forward that will get us feeling better, create employment and meet our needs in a more functional way. The conventional wisdom is that the an energy revolution is the salvation. A real solution is to rebuild the transportation infrastructure and use light weight/high-strength materials to produce a safe and efficient transportation system for the 21st century. The worth of that system would be ten times the worth of our present transportation system.  Elevated rail urban mass transit can lead our nation to wealth unless it is designed by corporate weasels.    

Frankenberry, a good fellow to follow is Peter Schiff of European pacific Capital.  He is right on about our economy.  Search him out on CNBC and You Tube.  He is calling it for deflation, at least a temporary deflation.  Check him out, everyone.

Have read both his books.  I dont agree that he is calling for deflation.  In fact he is predicting the absolute devaluation iof the USD.  IE, hyperinflation.  He is an excellent resource.  He goes so far to say that it is a mistake to keep thinking in terms of what things cost in USD, as that will prove to be a useless gauge.

We have the same concern, though differing opinions on the imediate outcome.  But it is nice having a civil discussion with you.  We'll see what happens, but we certainly both agree the land we love is toast -at least for some years to come.

Yep, Peter Schiff is an intelligent guy! 

Good luck to you and yours in the downturn, Frankenberry.  I know you will wish the same for me. 

I think we are a bunch of complainers.  We went nuts when gasoline exceeded $4 dollars a gallon in some states.  World renowned financial analysts said we were on a crash course for $6 and $7 dollar a gallon prices this past July…what happened?  Where are these speculators now?  They’ve lost all their bets and now oil is below $50 dollars a barrel.  I love it !!  This type of economy rewards the people who didn’t overspend on their homes. While millionaires took huge risks that were rsiky, the little guy put away his money for a rainy day.  Now it’s all come to fruition.  Retailers this holiday season will pay the price.  Speculators on Wall Street will pay the price.  And risky behaviors are now…..not so glamorous.  I can’t wait till gasoline hits $1.oo a gallon.  FILL ER UP !!!!  Take a vacation.  You’ve saved.  You’ve earned it !!!!!

Thats right, gas is down, we are doing what we should have been doing all along. saving instead of taking out more credit. The economy has been based on people taking out as much credit as they can get and the rise in the econmy was a bubble that thank goodness has burst. Now maybe housing, food and other essential product will be what they are worth and not the inflated prices that they were. Houses that were worth 50,000 were selling for 150000. Keep saving, keep using your heads in this and eventually we will come out ahead. Although the bailout taxes will probably do us in no matter what. Take a stand, do allow any more bailouts, call your representatives!!!

Sorry Frankenberry but there won't be hyperinflation because that requires TOO MUCH MONEY and TOO FEW GOODS.  What we have, which I as a history major was predicting TWO YEARS AGO is what we have now - TOO MANY GOODS and TOO LITTLE MONEY.  Debt IS NOT MONEY, it is THE ABSENCE OF MONEY and up until now we have been sustaining 3% plus annual growth (and China's 11%) on thin skinned balloon filled with air, and the air (our imaginary money) has leaked out.  Now, there is no money (except amongst the rich who aren't about to part with it) so there is no purchasing, so goods have no 'value' - deflation.

As a history major, you must have studied the Federal Reserve and fractional reserve banking, which our economy is now based on.  Every dollar created is created as a loan, or a liability, or DEBT.

Growth is a farce, because GDP is a farce.  It does not measure growth, it merely measures thje ammount of transactions moving back and forth, which in a debt based monetary system must happen for it function.  Without ever expanding debt(increase in borrowing), there isn't enough "money" in the system to pay the interest on the existing money supply.  I'm sure you as a history experty understand this.  GDP more accurately measures economic destruction in our system, because GDP is largely a measure of consumption based on debt.  Not on production of any sort.

For our "economy" to function again, the trillions will have to be let loose in the "economy", and as a history expert you surely understand that more dollars chasing fewer goods is the definition of inflation.

Good points, FranklinILM.

Finally, someone who actually gets it.  Yes, like the 1920's, or the 1880's, insufficient rise in wages to labor, inspite of productivity gains (which were largely siphoned off to the rich) led directly to deflationary periods in the 1890'sand 1930's.  And, since wages and income for 75% of Americans hasn't moved for 28 years (it fell in the 1980's, climbed very slightly in the 1990's and started its downward slide again after 2000) while there has been steady productiviy growth - the lion's share once again shifted to the rich, all inaccordance with repub policies, we are about to replay the 1890's/1930's

Forget Republican and Democrat fighting and start a business.

They will go up again as we head into depression.  No free pass on this one.

Are you going to wory about it or do something?

And how exactly is Obama going to accomplish that?  Serious question.

Well  frankenberry first of all you gotta be optimistic, let go of all the negative energy by having hope on what obama is trying to accomplish. He's only president elect and as you read and or keep informed  he's already making changes.

Every day that goes by is a day closer towards a new and better america.

Intersesting.  What changes has he already done?  From what I've seen, it's nothing but the same old song and dance.  Seriously.  New and better America for what and whom?

When you get that list of only American goods, share it with the rest of us will you??? 

That is a misnomer-Nissan is made here in the United States. There is a factory in Smyrna, Tn. Some Ford vehicles are made in Mexico. There are not many things that are owned by Americans and made in the United States anymore.

My opinion of this is, If you put a tariff on  all goods coming into the United States, even those made by companies that are Headquartered in the United States but have their manufacturing plants in other nations, jobs would stop going overseas and we would have manufacturing jobs again.

8 years????  Must be another anit-bush bigot.

This has been going on since I started voting in the late 60s with each year getting progressively worse.  We would be in the same mess if we would have had Gore.  NAFTA, introduced by George Sr and signed by Mr Bill is under the complete control of a few elite companys and has absolutely no government oversight. 

We'd be in this mess no matter who was in office.  I'm not sure what Obama can do other than back out of NAFTA.  He may not be able to do anything. 

Talk about bad foreign policy, Europe and Asia are already mad at us.  Do we add Cananda and Mexico to the list?