It Doesn’t Matter to Anyone Until it Matters to Everyone

Investors have a hard time getting over inflation, especially in the early stages of a deflating environment.  I guess since inflation has been the dominant factor influencing asset values for the past seventy-five years.  In other, some habits are just hard to break.  First, what is inflation?  Well, there are two types of inflation: (1) monetary inflation in an increase in the supply of money through the creation of debt, and (2) price inflation is a rise in the general price level of goods and services.  Second, what is deflation?  Well, deflation is simply the opposite of inflation.  Deflation would be a contraction in the supply of money and debt. 

Since the current and previous generations have lived in an environment of ever-increasing inflation, the natural tendency would be to simply extrapolate the past into the future.  Forecasts after forecasts by the so-called economic pundits have called for an economic recovery induced by more inflation.  However, this so-called recovery induced though inflationary measures are just not working. The only logical explanation is “Deflation.”  Deflation, not inflation, explains why after QE 1, QE 2, and Operation Twist, interest rates are the lowest in our history.  (One can get a fifteen-year, fixed mortgage at 3%.)  Deflation explains what is going on in Europe.  Deflation explains the deleveraging aspect of consumers.  (Consumers are trying to reduce debt, not take on more debt, which is deflationary.)  Deflation explains why real estate values are down 40% since 2007. 

Sooner or later, deflation will be obvious to all those lemmings out there.  That is the reason for the title of this post, “It Doesn’t Matter to Anyone Until it Matters to Everyone.”