Deflation? (November 24, 2008)

Deflation seems to be the current concern.  Oil, copper and aluminium prices are down dramatically.  When the raw materials go down in price, the finished products should go down in price.  In theory, sort of.  The price of a 250 foot section of Romex wire is now almost what a 100 foot section cost a year ago.  However, prices often are sticky and ratchet down slowly.  Lower prices sound appealing, although deflation does create economic problems among debtors and consumers.

However, the old economic models may not work.  Demand is down because no one has any real money and no one will loan any real or unreal money.  However, credible reports indicate that people need to eat, house, drive, acquire plasma tvs, etc.  The system is awash in unreal money.  However, those who produce goods and provide services are not standing by ready to respond.  They are collapsing.  The world‘s economies and the world Economy are splintered and increasingly disconnected.  If you build it, they may not come.

Gas did not hit $6 a gallon by Halloween; it hit $3 a gallon.  [See the e-ssay dated May 26, 2008 entitled “$4 in June, $5 in July, ….”.]  The momentum for fuel-efficient vehicles has abated and investment in oil-producing equipment and fields has declined.  When the demand for aluminium declines, bauxite is not mined.  In the near future, everyone will compete with pockets full of unreal dollars for scarce goods and services.  Bread at $100 a loaf?  Inflation still seems to be the hidden monster.  The new Weimer Republic writ large.

Bumper sticker of the week:


Whip Inflation Later

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