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.”
