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Bloomberg's Handy Guide To Why Falling Prices Are Horrible For You
With almost perfect comedic timing, Bloomberg unleashed the mainstream media's Draghi-confirming raison d'etre for QE... explainining why - shock horror - deflation is bad for you. No matter that the QE efforts of The Fed (and BoJ) entirely (totally and utterly) failed to spark any increase in inflation expectations, we must try try try again. However, despite the exuberant disgruntlement with deflation that Bloomberg offers, Portuguese economy minister Guindos had something 'odd' to say this morning: "European deflation is positive." We are sure he will issue some clarifying statement soon enough walking back such a dangerous and anti-authority comment.
Bloomberg's Shobhana Chandra explains Why Falling Prices Are Actually A Really Bad Thing...
1. When shoppers see persistent price declines, they hold out on buying things. They ask, will I get a better deal next week, next month, next year? As a result, consumer spending flails. For most nations, that’s a big chunk of their economy, and any slowdown in consumption threatens growth.
2. Businesses behave pretty much the same way. They postpone buying raw materials, hoping to get a break on costs, and delay investing in that splashy new facility or hiring an extra hand.
3. Additionally, their pricing power -- the ability to charge more -- vanishes. That makes it harder for them to grow profits.
In such an environment, if companies want to grab a bigger market share, they have to slash prices. That makes things worse.
4. Lower profits = less money to go around to workers. Employees don’t get the raises they were expecting, they cut back on spending even more, and the ugly cycle repeats. That’s why they call it a deflationary spiral.
5. The sad thing is, even when prices are falling, the amount you owe doesn’t. Borrowers get crushed under the weight of that debt. In a mild scenario, companies and consumers hold back on other purchases to continue meeting their obligations. When things get really bad, they go bust altogether.
6. Policy makers usually have an antidote to economic slowdowns, but it’s trickier when interest rates are already near zero. That’s exactly the situation with the ECB and much of the industrialized world. That forces officials to turn to unconventional tools.
Got it!
* * *
Having read all that propaganda, here is what QE did for America's inflation expectations...
And what Portugal's economy minister said this morning...
- *GUINDOS SAYS EUROPEAN DEFLATION IS POSITIVE
* * *
Awkward!
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Fighting deflation is fighting nature.
A dick deflates after sex; nothing stays hard forever.
Just call deflation "price discovery" and all is well again!
So.....according to DSM-V, Guindos is insane. Lets get him some meds...STAT!
This is not a historical "deflation", generated by productivity gains. Those are very good for savers, and have been stolen by the FED and bank skimmers with their stable price inflation=2% BS.
This is a credit implosion. Thow away your textbooks.
This is companies and to a lesser part individuals scurrying around to make sure that ends meet as credit is gone.
When you don't have cash, and cannot get credit to buy shit, you don't.
Simple as that.
pods
So falling oil prices are bad but when eveything else falls in price it is good?
Oil is falling due to credit drying up. This is not falling prices due to production productivity increases.
That is the problem. The natural order of the world is of deflation. Deflation by coming up with better ways to do shit. Cheaper, better, etc.
The problem is credit=money in this day and age, and bubbles tend to form where the biggest gains can be had. So credit goes to where the gains are and you get a bubble.
If oil prices were to fall by 50% due to some new and better way of doing things, yes it would be good. Say, an engine that got 200 MPG. Less oil demand, lower prices.
This plunge is because the dirty moneychangers created a bubble in oil and now that bubble has popped, and all the mainvestment has to crash too.
So all that drilling that was profitable at $80 per barrel is malinvestment if the natural, non bubble price of oil is $40 per barrel.
pods
Agreed. Not just propaganda, but bad propaganda.
People don't stop buying necessities during deflation.
They just have more money to save or spend on luxuries after the bills are paid. Saving money, and buying improvements are what make a good and strong economy. Being a spendthrift only "helps" in a Keynesian idiot's imagination.
Deflation only hurts banksters, and those governments and individuals that are idiotic enough to carry huge debt loads.
The tide of GDP ebbs and flows like the current in the seas but the rocks of debt are preferably forever jutting above the sands of assets. - Haiku bitchez
There is some truth to the mantra about deflation being bad. It explains why nobody, anywhere, has ever bought a laptop or a cellphone.
The US gov. has "solved" the problem of deflation. See, any price drops which would result in savings to hard working folk are otherwise sucked immediately by the corrupt monstrosity that is Obozocare to line up the pockets of insurance and health cartels.
Bloomberg's Shobhana Chandra explains Why Falling Prices Are Actually A Really Bad Thing...
Keynes you dig it suckah?
Correct. I don't think people realized just how fast, under these conditions, that "low prices" turns into shortages.
I'm sure your wife appreciates that.
Wife?
Nahhh.. Sold her into slavery a long time ago for a good price.
Jesus downvoters! Don't you have humor?
exactly
productivity gains are deflationary
need to go back to the steam engine
Correct, and this is not a deflationary event. It is a credit implosion.
The field of economics would be so much easier to navigate if definitions were at least agreed upon.
Speaking in terms of productivity gains, think of grand total that has been stolen by the moneychangers since they agreed upon that 2% INFLATION target. Say, productivity gains of 2%+2% inflation, and you are fucked out of 4% per year, compounded!
pods
Yup - and no amount of QE can force lenders to lend.
I think the last thing before the reset is the FED/BOJ/etc. start 'lending' directly to ‘necessary entities’ in order to prop up parts of the economy that 'suddenly' collapse ‘without warning.’
Now, will that happen this year? Doubt it, but the next 3 years should be fun!
With enough QE, people will eventually pay the gov't to hold treasuries at *any* maturity. At the rate we are going, we may yet see that.
Unless of coarse your wages are correlating with the inflation YoY... Which is why the moneychangers love the idea of this because they know wages are stagnate and have been for the past +/- 10 years.
Hands continue to be chained to thy ankles
"That's right Shobhana, when my fridge is empty and I'm starving, shrinking, losing weight, heck, I'm just going to wait until food prices come down so I can f*cking eat!"
"Yeah Shobhana, in my manufacturing business, instead of buying materials so I can make sh*t that my customers buy, I'm just going to sit on the orders and, you know, wait a bit until prices come down further. That will be good for the top AND bottom line!"
It is all, and only, about #5.........
I find this amusing! Hasn't zerohedge been feeding it down our throats that falling oil prices are bad for us? I swear I see at least 5 articles about that per day.
Wasn't ZH telling us that falling oil prices were great for the consumer and thus great for the economy because it is consumer based?
Or did I confuse that with MSM screaming during November and December???
ZH is pro-gold, pro-oil, pro-russia. Bashing any of these things seems to be met with strong idealogical resistance.
But I believe everyone looks forward to the day when CNBC goes dark for lack of interest.
Not bad for 'us', bad for the ponzi scheme economy created to enslave us. Five articles a day isn't enough for some I guess.
Nice flag.
Tell it to the market....exactly
The Viagra Market! Though it might be taking nitrates.
Anyone have a number when to sell the USD index? It looks way overbought here.
Depends on your timeline, until QE4 it will keep rising.
You could swap it for some CHF
Not any time this evening my friend. On up days such as this, the highest price of the day is usually the last one
BTFD
<<when to sell the USD index>>
When the derivatives market stabilises?
If the world weren't debt ridden, deflation would be great. However, it is, and deflation will be awful. Ask an oil field worker.
Or Texas!
Seriously...where is the final demand going to come from?
"From Big Business being the tax collector"?
That doesn't sound like a good deal to me.
I sure wouldn't want to work for the Government if that's the case. " He'll just outsource the entire enterprise."
"It will be harder for corporations to make a profit."
Oh Sh*t! Like we haven't had enough of this after 30 years of globalization and a race to the bottom where every f*c king cent of cost is wrung out of the supply chain to increase the profits of the largest corporations.
Excuse me if I don't shed any tears for them.
Deflation is bad is because it makes it even more impossible-er to pay back debt. The rest is bullshit, and even Bloomburg's point about debt is moot because we won't pay it back even with inflation.
Exactly, and for this reason we will never get out of this mess until we have massive debt destruction and the system is able to purge itself.
Bravo!
you get a gold star ... AND i'm going to tell your mommy to get you ice cream
Butter pecan preferably. And since I'm broke, can you spare a brother a fin?
That's going to be the Dem's 2016 campaign platform. Since the .1% will be the only ones left with all these securities the Dems will ask the 99.9% to vote for a law where none of it is paid back; mortgages, student loans, car loans, credit cards, payday loans, ... That will crank GDP to infinity - 1
And since we all know that the real reason that we cannot have deflation is because it would upset the status quo of the rich getting richer and the poor getting poorer, we know that the rest is pure propaganda. It is maddening to the point of wanting to smash whomever is playing the role of Goebbles in the head with a big rock.
We can't let that happen, because our debts are the banks assets. If we allow the debts to default, bankers won't be rich anymore!
6) policy makers usually have a solution to economic slowdowns......
Now there is some funny shit right there. We've been in an economic slowdown for fourteen years and they've done nothing but made it worse.
and can't rebound until the bad assets are purged(some call it failure of bad players). until that happens we are stuck with moar bad keeping bad on balance sheeeeeeeeeeeeeeeeeeeeeeets.
Productivity itself is deflationary, look at every single advance made in the history of civilization: deflationary.
See below and "so are sterilized debt purchases on a truly massive scale."
You're killing demand.
Why own euro's if Switzerland no longer wants them?
The left out the big one: deflation kills banks. Even central banks.
Dude, that would have ruined the article. This is supposed to be about why deflation is BAD.
it's true, seek. deflation is the biggest cop-out CBs use to justify their maneuvers (which in reality sow the seeds for their future asset-stripping). neither inflation nor deflation would even be an issue if we had sound money policies i.e. PMs. the CBs very much enjoy having the peasants expect these disturbances as natural and holistic to an economy.
1. LOL
2. Are you defining business as .gov
3. Doesn't make it worse for most just the top 1%
4. Um, Higher profits= less money for workers also
5. No thats just people trying to save money and pay off debt obligations for the future. Fucking amazing
6. How about this unconventional tool - The world remove itself from central banks rule of law.
I read that Bloomberg article earlier and was incensed!! I love the part about people putting off purchases because of mild deflation of 1 or 2%! That's the most bogus argument around AND that's assuming there is deflation....which there isn't.
I could possibly see putting off a purchase if there were rapid deflation going on of 20, 30, 40% or more but that is clearly not happening!
TV prices keep deflating, but everybody has at least one if not more. I think if the price goes down you get one for the kitchen and the bedroom.
yes
and what the morons fail to say ... back 30 years or more you REPAIRED the TV (plus technology pretty stagnant)
Now?
there getting so cheap you just buy a new one if out of warranty ... so you buy MOAR
and this applies to a lot more than just electronics
Classic case of misdiagnosis.
Consumers aren't putting off the purchases because of anticipation of falling prices. They are putting off purchases because they are fucking SCARED..!!
You can lull them into a passive stupor of cognitive dissonance for only so long.
I'll give Barry credit for one thing: His handlers are MASTERS at spin. And the masses are simply too stupid and complacent to call it out.
One more good 2008-2009 style crash (likely worse) will be the only medicine to start us down the path to recovery.
They're probably putting off purchases because they don't have ANY damn money!!
Ditto. The rest of the list may have some merit, but the first two items are nonsense. Here's how I figure it. People have loaded up on debt. They have those payment obligations, but the company didn't give out raises b/c they did sell as much shit, b/c everyone else is loaded up with debt, and can't but anymore. They aren't waiting for lower prices, they just don't have the cash for anything. So, then the business start cutting and slashing trying to move product, etc... which is where the rest of the list seems to be ok.
Our brilliant central banks agree with the first two items. they think demand and cash are unlimited. They are wrong. In the end, too much debt is deflationary.
It's already impossible to pay off the debt. Without wage growth there will be no inflation, and QE doesn't cause wage growth or create jobs.
Its actually far worse...but this community now gets it so good I'll "let it go" for a change.
too bad ZIRP/QE is disinflationary ... deflationary when asset bubbles burst (we're at onset)
i got it, bloomberg. i've postponed eating for a week now but things are getting pretty dire. i haven't had a sip of evian in a couple of days and i'm starting to feel like that guy in the movie unbroken... no sharks around here, though...
wonder if i can postpone dying so that i can get a cheaper coffin a couple of months from now.
I honestly though Shobhana Chandra was one of those algo programs that write stories for Bloomberg. Some of her articles lack flow - to put it nicely.
Yeh Indians that want to stay in the US and not have to return to filth, tend to say whatever it takes. There is a lot of them like that in the US. They ain't so good in IT either, that is a myth.
This is bullshit. People will buy when they need the products. I would contend that risng prices pushes people to buy sooner i.e. fake consumerism.
I'd rather people buy what they want, when they need it, rather than rush out and buy it for fear the price will increase.
Yes, it's inflation, not deflation, that is the demon.
Good time to stock up on Meals Ready to Eat ...again.
That is too much bullshit for one day, but to explain point nr1: people cannot postpone buying food, shelter, transportation, etc. Also, the converse also proves the above assertion false: people do not invest their money when they can get more money later. They live paycheck-to-paycheck because that is what they have been conditioned to do.
4. Lower profits = less money to go around to workers. Employees don’t get the raises they were expecting, they cut back on spending even more, and the ugly cycle repeats. That’s why they call it a deflationary spiral.
** money hasn't been going to workers for decades!! This point is totally incorrect and a lie! The author is such an ass-hat!
Interesting, because the cost of living keeps going up.
So long as there are 7+ billion people, and growing, on this rock, there will be plenty of demand for a higher standard of living and all th REAL commodites, resources and energy that is required to make that possible.
Deflation is a fucking myth, unless you take the earth's population back a few billion, then you might see some real "deflation".
So, $1 gas is bad, but $5 gas is good?
you likely got downvoted by a shale investor about to lose it all thinking the price of oil would stay above $100. Fucking wannabe wolves.
Deflation is positive. Up is down. This is the new normal.
Who wrote this. Obama ??
Nobody knew until now, but Mario Draghi's pen name is.....Shobhana Chondra!
Falling prices = 'bad' is not the same as saying rising prices = 'good'. There is a limit to both.
Falling prices are, by and large, a net positive for all people (including corporations). Think of it this way. For years we've seen tech prices fall. My first computer, purchased in 1986, cost me about $2,700. I bought a much more powerful machine today for about $600. The company I purchased it from is healthier than it was in 1986. So is the company which provided the supporting software. So, for a cheaper price I got a better machine AND the companies that provided this product have benefited from falling prices in the intervening 28 years.
Now, that logic can't apply across the board to EVERYTHING, but neither can the logic that "falling prices = bad". Achieving the balance is what we rely on the market for.
Which is why the Fed is disastrous because by simply saying deflation is bad, they create a mindset that essentially makes it OK for them to fleece the general public.
There are time when deflation is a net good, and must be allowed to occur. I am of the opinion the last 7 years have been a period of real hyperinflation, given that we've been in a deflationary downturn that has only been propped up by the Fed. We've avoided reality because the debt burden has hidden the deflation, for the time being. The problem is, when the worm turns - it's really going to turn fast and hard. Then, yes, it's going to be bad.
"even when prices are falling, the amount you owe doesn’t. Borrowers get crushed under the weight of that debt."
Such a sad story. Just maybe they should try and control their spending. Being a saver, I welcome deflation with open arms.
The elite don't care if borrowers get crushed-that just means more assets for them to gobble up. They only care if banks get crushed because of massive borrower defaults.
consumer spending flails? Flails, seriously?
You keep using that word. I do not think it means what you think it means. [/Inigo Montoya]
2 + 2 = 5
Got it?
War is Peace
Freedom is Slavery
Ignorance is Strength
I'm surprised inflation hasn't set in with all the money printing so far. I was under the impression when countries print, inflation or hyper inflation is a result.
Now we are staring at the abyss of deflation, people losing homes and jobs and money to buy food.
The Great Depression, a real one this time, is around the corner. Tent cities are among many cities now, just wait, it will get worse.
So what happened to all the printed money?
It was never physically printed and circulated. It was all circulated around networks and stored on the equity markets and other pseudo investments.
Hang on to your hats.
If housing becomes affordable, we won't need all the government affordable housing employess and as luck would have it, property tax collections would fall.
"I let the wife handle the money"
Whatever.
Central banking is evil.
"deflation is great" - Bill Belichick
Talk to Tom Brady about his balls. - Billy New Shirt Belichick
Demand is created by low NOT high prices. If a good or service is in demand, the price charged will reflect that.
Effin banksters always put the cart in front of the horse and slap it on the ass, in front of a washed out bridge.
If deflation is so bad, then raise interest rates so savers have something to spend on useless Chinese trinkets.
And what happens if prices stay the same? I'm sure that's bad too, othewise the Fed would target 0. ... Wouldn't they?
Now that is a good question. Exploring that question may result in a tin foil hat. Caution is advised.
bloomberg news . just the name describes it to be nothing more than an empire mouthpiece.
Democrats support inflation because of their increasing marginal tax rates. If they were not grubering their uneducated masses, they would not want to see asset prices rise and become more affordable for their constituatants.
Here is some more truth : http://youtu.be/j9fts21s3Ao
The problem is of course that while we all love lower prices, we hate smaller pay checks and reduced abilities to pay loans back. Oh and there is that thingy about fiat systems requiring growth of the money supply to survive. This fiat system is just about deceased and no one wants to admits it. That is the real problem and that is where our future lies..in preparing for a new and better monetary system.
Either the 401ks and IRAs will evaporate into a bailin or your $100 bill will become a $10 bill overnight.
Well it's obvious from this article that Companies would sell more product if they didn't lower prices...
/sarc on
1. This is why nobody buys computers / laptops /tablets / cell phones.
2. This is why car models never change.
3. This is why companies don't invest to be more efficient
4. This is why productivity never goes up. /sarc off
5. Yes. Debt is bad in the natural order.
here's a thought: People will buy what they need even if prices are falling. People will buy what they want if there is a present benefit to be derived from it. Otherwise, one would never have bought a telephone. Prices fall as companies become better at making whatever it is . No new product would ever get off the ground based on their logic - no early adapter would ever buy the new product as everyone waited for the prices to fall. No company would ever improve their products because it would lead to lower prices. The stupid. It burns!
It's the natural order of things that prices fall as more things are made / services offered. Competition encourages efficiency and productivity which leads to lower prices. Innovation drives this, supported by savings that can be used as capital.
Thank you. Every time this dumb thought is thrown out there be economists, we need to throw them under the bus. Only an academic can reason this is true.
More mindless reporting from idiots with the most basic of basic economic training. What a crock of shit. "people delay their purchases" ... yeah fuk it I'm not going to buy dinner tonight, i might get it cheaper tomorrow.... fuk wits....
We are the playground, ya see?
1. When shoppers see persistent price declines, they hold out on buying things. They ask, will I get a better deal next week, next month, next year? As a result, consumer spending flails. For most nations, that’s a big chunk of their economy, and any slowdown in consumption threatens growth
This is the great myth that economists continue to repeat which is not true. The technology business disproves this. Walmart's success disproves this. If I think gasoline prices will drop next week, do I delay purchase? Sure, but eventually I have to buy it anyway. I can't postpone forever. If food prices go into deflation and continually drop, do I stop eating forever? Of course not.
Does anyone with a car think falling gasoline prices are bad? Are they going to cut gas purchases? No, gas use will increase, witness the recent uptick in light truck sales.
Similarly, if prices are rising every week, will I buy sooner? Sure, I will buy as soon as I can, but how much produce, meat, etc, can I store? Not very much. How many shoes will fit in my closet? Not many.
I wish economists would just be honest but they can't because the truth would sound bad. They would have to say that because central bankers and politicians have encouraged massive increases in debt, deflation would be bad because the massive debt would go bad (rightfully) and the people who made the loans would lose out (which they should for making bad loans). A credit based system cannot have deflation and that is why we need prices to rise ever higher. Who cares if it buries the little guy. We are central bankers and all we care about is the financial system not experiencing a clearing event or run on the bank because it will expose the folly of the all the debt we encouraged. So, as we see it, what is good for wall street is good for main street, for without the debt serfdom we provide you wouldn't be able to afford anything and far be if for us to let prices actually decline to affordable levels.
deflation is only bad for fiat, fractional reserve, ponzi scheme con game.
And those consumers deep in debt. Which only further cuts their spending ability .......
How do you say "nailgun" in Portugeese ?
"pistola de prego"?
Bloomberg's piece is a heap of BS. The 6 reasons are only bad for certain categories of people, not everyone by any means. They only tell half the story. EG:
What actually happens is that people reduce spending once only to a new moderated level, only buying the goods they need "at the time", instead of buying surplus stuff "just in case I need it". But when you need a new laptop or HDD for your computer, you buy it. Period. This can be seen as positive since it reduces the vast amount of unwanted stuff that gets bought and sits in the cupboard or thrown way.
I was going to get gas today, but I'll wait until tomorrow, it'll be 0.02 cheaper.
Yup, mom and dad are out of diapers for the baby-but they'll wait till next month when it's cheaper.
This whole deflation thing is bad inflation is good thing is horseshit. All that matters is wage growth Vs Asset Growth.
IN DEFLATION we get Screwed because people dont typically accept wage decreases directly, so instead we get furloughs and part time jobs and contract work replacing FTE's all leading to lower wages overall, but the wage deflation lags asset deflation which is bad for wage PAYERs and ASSET HOLDERS. If assets are allowed to drop, this makes the asset owners and Wage PAYERS underwater, thus this can never be allowed to happen.
In an inflationary Environement ASSET OWNERS see portfolio value increase, prices increase, and they stagnate Wages, thus creating LOWER labor Costs for production increasing profit (or reducing losses).
Policies are written to favor ASSET OWNERS, and wage PAYERS. The working man be damned.
Deflation is great for the working man provided they still ahve a job to collect their wages.
Ultimately the problem is money concentration. Print away, it matters not how much there is, it will be hidden away from the economy in illiquid Assets. We need to alter the system to provide a facility to break up the wealth concentration. All we have now is purposeful directed asset inflation (housing, Soverign Debt, Financial Securities).Becuase of all the Debt that is written against those assets they can never allow MTM to have realized losses.
We will never see inflation (WAGE GROWTH) in the economy under these conditions.
Almost but not quite. Any person can define "money" how ever they like. Even out of work people who are physically fit can extract something of value from anther by provide all kinds of services.
Please, you are mad about the mess the bankers and financiers have made with their fiat money and political puppets?
Stop using their fiat!!
HA! You ever hear of the Hunt Brothers and Johnathan May? Good luck circumventing the Money Changer fiat monopoly -- they do not fuck around about this.
Bullshit. Some things you cannot "wait to buy".
Morevover, if you produce REAL things, you like it when your REAL inputs are cheaper.
Fuck the useless paper pushers and their financial "products" of mass destruction.
Well, I don't know about you but when I see something that I want on sale or with a lower price, I buy it thinking that the price will go back up next week.
Your Borrowing -> Your Risk -> Your Consequences
GET BUST YOURSELF BLOOMBERG.
I think I'll hold off on buying that gallon of milk and pound of beef until after expiration
It's gotta be cheaper then
Maybe what they mean is eating dated, moldy food is bad for you?
Here is a novel idea - let's just buy things as we need them, instead of pulling demand forward. Inflation makes you buy necessities now, and stockpile them, due to increasing prices and decrease in currency value. We were generally a deflationary economy before the banksters pulled the rug out.
1) Heaven help us, people might saving money to spend it later.
2) Businesses always postpone spending if they can.
3) Apple seems to have managed well even though the computer industry has had perpetual deflation.
4) Why do people need raises if their cost of living is going down?
5) Ahh the real pronlem, we must reward borrowes and perpetual screw over savers.
6) Markets have an antidote for contractions as well, it works well and without CB intervention the average duration is 13 months.
de Guindos is Spain's economy minister, not Portugal's. He ran Lehman Bros in Spain & Portugal until its collapse in 2008.
Guindos is the Spanish finance minister, not Portuguese. Small detail, yet relevant
Apparently, the geniuses over at Bloomberg hasn't thought of comparing my yearly average grocery bill over the past 14 years. If they want to see inflation, then just check out my register receipts for the same food every week. Or perhaps they could look at the historical price of higher education over the same time period.
Guindos has it right. Bloomberg is just a statist propaganda rag from an editorial perspective, but as a general remark, the notion that declining prices are somehow "bad" is complete economic nonsense and anyone who asserts so is a Keynesian economic illiterate.