Deflating down.
Business is changing. Guess that's no surprise. The current doom and gloom mongers are trumpeting deflation woes. I was curious about this and looked up a little about it. Seems we haven't had deflation since the early 50's. Before that there was a give and take cyclical bounce between inflation and deflation with a slight bias towards inflation as productivity improved -
Most people now alive have never experienced a deflationary period. We've only known inflation. With inflation we could always count on higher and higher wages, higher prices and the total cost of of a loan was always less than the interest rate because of the inflation.
But with deflation that all changes to the other side of the coin. Wages will be adjusting downwards and so will prices. Profits are going to be in decline too. Existing loans are pure poison, costing more and more with each year and qualifying for new loans will be difficult.
Big companies have been hoarding cash since 2008, just like the more savvy individuals. They're paying off loans left and right and not taking on new debt. Also, the stock holders are starting to demand dividends again since the yield on treasuries is so abysmally low. This means boards aren't going to be as keen on sharing the profits with the officers, otherwise there will be new boards elected.
So the job market isn't going to be all that great for years to come. It's always quicker to raise profits by layoffs and re-hiring at lower wages. The constant productivity improvements we've had for the last 80 years are coming to an end, too.
But we won't have runs on the banks like in the great depression, FDIC insurance covers depositors to $250k per account. But banks will be failing anyway, due to bad investment choices. The fallout from the housing bubble burst still hasn't stopped.
It won't be the end of the world, but things won't be easy either. Renting a house will be the norm and moving from job to job, town to town will be common. Saved cash will be king in big ticket purchases. No more borrowing for luxuries.
My folks lived through the great depression and while they were never well off, they had a roof over their heads, food on the table and new clothes every other year. Something the current generations may come to appreciate.
Most people now alive have never experienced a deflationary period. We've only known inflation. With inflation we could always count on higher and higher wages, higher prices and the total cost of of a loan was always less than the interest rate because of the inflation.
But with deflation that all changes to the other side of the coin. Wages will be adjusting downwards and so will prices. Profits are going to be in decline too. Existing loans are pure poison, costing more and more with each year and qualifying for new loans will be difficult.
Big companies have been hoarding cash since 2008, just like the more savvy individuals. They're paying off loans left and right and not taking on new debt. Also, the stock holders are starting to demand dividends again since the yield on treasuries is so abysmally low. This means boards aren't going to be as keen on sharing the profits with the officers, otherwise there will be new boards elected.
So the job market isn't going to be all that great for years to come. It's always quicker to raise profits by layoffs and re-hiring at lower wages. The constant productivity improvements we've had for the last 80 years are coming to an end, too.
But we won't have runs on the banks like in the great depression, FDIC insurance covers depositors to $250k per account. But banks will be failing anyway, due to bad investment choices. The fallout from the housing bubble burst still hasn't stopped.
It won't be the end of the world, but things won't be easy either. Renting a house will be the norm and moving from job to job, town to town will be common. Saved cash will be king in big ticket purchases. No more borrowing for luxuries.
My folks lived through the great depression and while they were never well off, they had a roof over their heads, food on the table and new clothes every other year. Something the current generations may come to appreciate.