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Bob Doeden recently wrote...."I would like to have it explained to my why we
will have
deflation when there are more & more people chasing fewer &
fewer resources."
The possiblity of deflation exists because so much of the excess liquidity
that has been avaialble has found its way into capital investment. This
expansion in capital investment has greatly exceeded consumer consumption.
So currently we have excess capacity and weak pricing (look at the auto
industry rebates). Consumer borrowing is slowing reflecting less demand.
This basically says that inflation is not a problem....but deflation could
be.
Recently I read a report that stated that capital surplus available for
investment has risen about twice as much as consumer consumption since the
early 1990's. And that gap in still rising rapidly. With the consumer
generally chin-deep in debt and the growth in debt slowing, consumer demand
could well weaken more than expected. If that happens, with excess capacity
in our industries, pricing could get much weaker. That is how deflation
could come about.
This is not a die-hard prediction on my part. I merely wanted to engage in a
discussion about its possibility. But so few people out there picked up on
it that I now believe it might well be a very good contrarian view. We
should watch out for it....
Sorry for the delayed reply.
Jerry
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