Deflation

The ads seem to bring a lot of good news.  A local clothing store advertises that if you buy one suit you get two free and a discount on dress shirts – an amazing 2/3 off!  Prices on computers and technology continue to fall with some laptops available for as little as $500.  This is a great boom for consumers, isn’t it?

The short answer is yes, but the long answer is no.  If you take all of this together we’re looking at a serious problem with deflation, something we haven’t seen since the 1930s.  It’s far worse than inflation for many reasons, the simplest version of it being that an economy based on credit cannot function if there is no reason to expect rising returns on investments.  And there are signs that deflation is going to be the watch phrase for some time to come.

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