Archive for August, 2010:

moonlighting on another blog

Written on August 24th, 2010 by James10 shouts

I have written a piece for Rana Cash’s blog over at the AJC this week.

Happy Reading:

Filed under Insurance, Personal Finance Tags:

inflation vs. deflation

Written on August 10th, 2010 by James2 shouts

There’s been a lot of debate in the press lately about inflation vs. deflation.  The inflationary side says that the Fed is printing money so fast that we will inevitably incur inflation.  (ie: the value of the dollar goes down so it takes more of those dollars to buy things)

The deflationary argument says that people are out of work and home values are falling so folks aren’t spending.  When people don’t spend prices naturally come down to where demand is created.  When prices fall that is deflation.

I will leave it to the much smarter economists to battle it out on what will eventually take hold, but for purposes of this financial infotainment blog let’s take a look at real world examples:

The wife has been wanting to wrap up our 9 month basement project by purchasing a home theater system.  You know the deal:  large flat screen plasma tv and surround sound audio system.  I knew that we would eventually do this, but since the thought of spending this kind of money causes an anxiety attack, I have been stalling.  Stalling for the better part of 5 months.  The main reason is that each Sunday I would check out all of the ads in the local paper from electronics stores.  Guess what?  The price of TV’s have steadily declined.  I knew  that there was no way the prices were going to rise so by putting off the purchase I could get a better price.  This my friends is the problem with deflation – nobody can make consumers spend if they feel that they can get a better price by waiting.  If everyone adopted this philosophy the economy would be in real trouble.  Consumer spending would halt.  That is deflation.  The Fed hates this because there isn’t anything you can do to force folks to spend, unless they think prices will eventually rise (inflate your way out) or if jobs return and growth resumes (then you feel better about spending).

So that is the real world example.  On the flipside, I have been looking at the grocery bill lately and it definitely has not gone down.  In fact it appears to be creeping up. 

I guess we are faced with inflation in some items and deflation in others.  Where it ends up will be interesting.

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