Thursday, August 05, 2010

Are we on the "cusp" of deflation?

Nikhil Hutheesing has a video on “Daily Finance” interviewing Gary Schilling with a warning “U.S. is on the cusp of deflation,” link here.

Despite the growing national debt (or maybe because of it), Schilling thinks that the US economy faces 2-3% deflation a year for the next decade.

This sets up depressionary psychology where consumers keep waiting for prices to get lower while inventories rise. Schilling also predicts a W-shaped recession, and then a long drepressionary period.

That’s the classic essay question in freshman college history on the Great Depression.

Nevertheless, with health care, eldercare, and education costs rising, one wonders. Why can’t more unsold condos be refurbished into senior retirement homes and step-downs to assisted living where necessary. That would sell some inventory in Sunbelt cities. Donald Trump should get to work on that idea.

Other stories today suggest that a housing shortage could again develop quickly.

I see on Amazon that back in 2002, Schilling had a book "Deflation: How to Survive & Thrive in the Coming Wave of Deflation".  He has a new book coming from Wiley in two months, not om Amazon yet.

In AP calculus, a "cusp" is  max or min point, isn't it?  Anybody remember their last calculus test?  It's summer, I know. Mathematics really matters in finance and economics.

Here's another take on Daily KOS, "If deflation is bad, bailouts are worse", from Aug. 5, link.

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