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Macro Economics
Worried about Inflation, not Deflation

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By RaptorD
December 22, 2008

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Deflation here, deflation there, deflation seems to be everywhere. It's the talk of the day from CNN, CNBC and other well-meaning talking heads that invade all of our lives when we let our guard down.

But wait a minute. Deflation at my house is something on the news, something that affects bond rates, the stock market, home values and someday hopefully will help the US to sell some exports. I can see how many might be affected but their circumstances would be different than mine and maybe yours too. Within my household only, I don't expect to be affected much. In thinking about a few major expenses ...

Housing prices are going down. Doesn't affect me directly, I already own my home with a 5.125% mortgage. I guess we might have move down if real estate was valued higher, but moving is not high on my priority list. It won't help my balance sheet but the regulators (Wendy) suggest not including the ol' homestead anyway. Oh great, another "off-balance-sheet" asset. Oh well.

Utilities? Don't know. Increases will probably be considerably less than during normal times, whatever they are. My memory is getting old and tired, I'm not sure what normal is any more. But the utilities don't usually have the problem of not being able to raise prices when other costs go up, so if credit costs, etc. do start to pinch them, they'll probably just pinch me in turn. Overall, it's a wash.

Gas? Yep, that makes a difference of course, but my family really doesn't drive that much compared to our neighbors so any savings in fuel will be pretty slim for us.

Clothes? Have enough, doesn't matter much to me.

Food? I'll have to ask MrsRaptor, she's the ace coupon-cutter and master bargain shopper for most of the things we eat. But I balance the checkbooks and I sure haven't noticed any food expenses dropping.

Cars? I would say that it doesn't matter to me but actually DW's 2003 Toyota leaves me wanting something better. So I've kicked a few tires lately. (So far all Chevy's and of course I say that strictly for my friend Milligram's sake.) Are cars "cheap"? Not really. Many dealers have already paid for, or are committed to pay for, their inventory. The factories aren't going to give the dealers cash rebates on something they've already sold to them, so the cost is pretty much the cost, and any savings are far from being a tremendous bargain, certainly not a "once-in-a-decade" sale or anything like that.

Charity? Oops, there's something I'm concerned about and am also quite surprised that we haven't heard some big stories about-you know, charities coming up way short due to our inability/reluctance to part with dollars to help others. If I save anything from lowered expenses due to deflation (or whatever) I think that's where the extra will have to go. I have it so good but I hope I never forget what it's like to be poor or to be out of a job. I've also always had a home to live in. A couple during college weren't exactly the Ritz, but they always kept me warm and dry. People that are missing that have my attention and I'll help any way I can.

Furniture and household goods? We don't need ‘em and it can't hurt to let the credit cards cool off anyway.

Deflation may be extremely tough on our economy and if it really gains traction (or is it gravity?) I expect some serious potholes on that road. But personally? At the RaptorShack deflation won't change much of what my family does. That doesn't mean it doesn't concern me, it does, but in a macro sense.

What concerns me much more is the inflation that is coming soon to a theater near me (and you.) inflation '09, now that's one movie I would gladly miss. I'm very aware that many experts think deflation is much more damaging than inflation Given either in the same magnitude, they're probably right. Since I don't have enough to worry about, I think I'll concentrate on the next shoe to drop. Right now "De-" is in. But I think "In-" is coming and I think "In-" is going to hurt all the way to RaptorStreet. (That's Main Street, where Joe the Plumber is my neighbor..)

I could be wrong. Heck, I hope I am. Mr. Market got a piece of me this year too, even though I was sleeping with one eye open. So maybe inflation is nothing to worry about. Besides, I feel like Alfred E. Nueman. You remember, the freckled, ugly guy on the cover of MAD Magazine? "What, me worry?" Besides, what good would it do to worry? I'm not running the country or our economy anyway. Ha! I'm not too sure anyone is.

Dan