Deflation Theory Reality Check and the "Feel Good Effect"

If you repeat something completely inane enough times, do people, even economic writers, believe it?

“I cannot come up with a single consumer item that people will routinely delay purchasing simply because prices are falling. Can you?”

Not if you look at consumer wealth as a constant.

Instead, imagine you are unemployed, and until you get work the money you have is *all* the money you have. So you can either buy food, or you can get a “great deal” on something that is really discounted, but has little or no resale value.

In the Great Depression, their deflation hit at the same time as there was such a surplus in food that it wasn’t worth it to truck to market. The reason for the deflation was a money shortage. The saying went:

“You could buy a pound of hamburger for a nickel, but nobody had any nickels.”

Today, a money shortage is an even odder thing, because we have and use two kinds of money: virtual and physical.

Virtual money is in the bank, so if the bank refuses to give it to you, it isn’t yours. Or, if the government takes it, directly from the bank, it isn’t yours. And there is nothing you can do about it.

But physical money in your possession is different. It *is* yours, unless they come to your home to get it.

However, there is a tremendous shortage of physical money available to people. Now around 4% of US daily retail exists in physical money. And here is the zinger: it is *already* deflated.

Out of many possible things, if something bad happens to the virtual money, either a disaster or a corporate catastrophe, or most likely government gone wild, tens or hundreds of millions of Americans could be stripped of their wealth, in part or whole.

And only those with physical money would be left standing.

And because it is currently 95% inflated, they would be the only people able to buy anything as prices collapsed.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.