By Tim McMahon The average annual inflation rate dropped again this month. At a monthly rate of -1.01% October's drop was touted as "the largest monthly drop on a seasonally adjusted basis since 1947 when the Bureau of Labor Statistics first started tracking seasonal adjustments" and it brought the annual inflation rate off its highs and down to a more reasonable 3.66%. November's monthly rate was almost twice as large at but it was hardly mentioned in the news. This month the annual inflation rate has dropped down virtually zero-- 0.09% with a monthly drop slightly larger than the one two months ago. Just a few months ago the annual inflation rate was 5.6% and now it is … [Read more...]
Deflation or Hyperinflation?
By Tim McMahon, Editor The monthly inflation rate dropped like a rock for the second month in a row. Journalists touted last month's drop as "the largest monthly drop on a seasonally adjusted basis since 1947 when the Bureau of Labor Statistics first started tracking seasonal adjustments". What are they going to say this month when it is almost twice as large? Largest drop since last month? This is real live deflation on a monthly basis (although not on an annual basis... yet). Basically, deflation is falling prices (or more accurately a decrease in the money supply that results in falling prices) while disinflation is a slowing of the rate of increase in prices. Are we in a … [Read more...]
Making Preparations and Taking Action in Today’s Deflationary Environment
Editor’s Note: In the following article Robert Prechter shows you how to prepare for a deflation. By Robert Prechter, CMT The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you. Many investment advisors speak as if making money by investing is easy. It’s not. What’s easy is losing money, which is exactly what most investors do. They might make money for a while, but they lose eventually. Just keeping what you have over a lifetime of investing can be an achievement. That’s … [Read more...]
What is Deflation?
Define Deflation: In common usage deflation is generally considered to be "falling prices". But there is much more to it than that. Often people confuse deflation with disinflation or with Depression (as in "the Great Depression"). These three terms are related but not synonymous. According to Investorwords.com the definition of Deflation is "a decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, … [Read more...]
Inflation similarities between the 2000s and the 1970s
"even though we have not seen the volatility of the 70's we are certainly traveling in the same direction." In the 70s, gold spiked to over $800, Inflation rates were over 14%, OPEC limited the supply of Oil, there were wars in the Middle East and the U.S. economy was a wreck. In the 2000s, Gold has doubled from $250 and ounce to over $500, inflation has doubled from 2% in 2002 to over 4% in 2005, Oil supply is maxed out, the decade began with a recession... is there any chance that we are returning to the 70s? Recently I was asked, whether I saw any similarities between the 1970's and the current decade. And that got me to thinking. If you remember the 70's culminated in a double digit … [Read more...]
Hurricane Katrina: The Economics of Disaster
The Economics of Disaster: Are Hurricanes Inflationary or Deflationary? Insurance companies have estimated the damage from hurricane Katrina at $25 Billion Dollars. But the economic effect is much greater than that. That is just the loss of property. Another consideration is the loss of revenue while things are being rebuilt. What about the loss of jobs from the companies who won’t be rebuilding because they didn’t have insurance? According to the “Financial Times” current estimates of “total economic losses” are closer to $100 Billion. Those numbers are so large that it is almost impossible for us to get our minds around it. If you stacked 100 billion one dollar bills on top of each … [Read more...]
Affordable Luxuries?
According to the January issue of "Wired" magazine luxury items are more affordable than ever. They picked several items and adjusted their prices for inflation and found that in inflation adjusted dollars many luxury items cost less than the did 10 or 25 years ago. How can that be? According to "Wired" the price to charter a plane for an hour was $3,016 in 1980 but was only $1,850 in 2004, a decrease of 39% over 24 years. A BMW series 3 was $40,945 in 1995 and is $30,840 now a decrease of 25% over 10 years. Other prices they compared were Dinner at the 21 club $114.66 in 1987 and $87.50 in 2004 for a 23% decrease over 17 years. LaPavoni espresso machine $1,242 in 1975 and $550 … [Read more...]
