"It is best to engineer a slow-roll deflation…"

So you agree that deflation is better than inflation.

Regarding "cheap knick-knacks", I don't understand what you're talking about you're either making this more complicated than it is or assumed I said things that I did not.

My point is strictly about consumers and businesses, people prefer paying less for goods with everything else being equal. I've never met a consumer who would knowingly prefer paying $4.99 for a pair of scissors when the same identical pair can be bought for $0.99. To test this "theory" go ask anyone on the street "Would they rather pay $5 a gallon for gas or pay $1 with everything else being equal?"

So, you believe as RTD does above "Deflation discourages investment, and lower investment leads to lower incomes which leads to more deflation. A deflationary market is not self-correcting, it is self-reinforcing."

Then you and RTD must believe prices of goods would just continue to fall eventually collapsing to ZERO since its self-reinforcing and nothing to stop it.

Let me know when people can buy farmland, ocean front land, Porsches, Maseratis, Rolex watches, diamond rings, well you get the idea, for $0.00.

Trust me, when prices get low enough savers like redst8r above will step in and support prices.

I disagree with your comment "There is really nothing to invest in even after the delevering is complete."

There are plenty of things to invest in at the right price. Though right now I'm using my savings to short stocks which currently are quite expensive:

http://zerohedge.blogspot.com/2009/06/is-market-pricing-in-2012-forward.html

So, no I don't think the market has ultimately cleared this is just a bear market rally, but when stock prices get cheap then yes, I'll be buying aggressively. Even with deflation the stock market is NOT going to zero.

I'm a deflationista, so I think real estate prices will fall further, but eventually I'll be buying a condo here in Vegas once the prices bottom out and I'll bet you any amount of money that Strip property will bottom above $0.00.

BTW, malinvestment while unavoidable is NOT desirable at any level because it misuses capital. Think of all the capital that was wasted on homes which are really just shelter. Our country would've been much better off if this capital went into say health care, infrastructure, technology or alternative energy.

No, no, they do not.

"The problem is, as is intuitively obvious to any laid-off factory worker who has contemplated the cheap knick-knacks on sale at Wal-Mart, that the drop in cost of living never matches the drop in wages. Like many free-trade arguments, it is qualitatively true but quantitatively false. The mitigating factors mitigate; they just don’t mitigate enough.

Don't believe this? Let's count up how many people have voted against incumbents because they were unemployed, and compare this to how many have done so because they couldn't buy a pair of scissors for $.99. Has there ever been a demonstration in the streets about the latter?"

http://www.ianfletcher.org/things_fall_apart.htm

"The problem is an over investment or malinvestment as the Austrians call it in many areas of the economy. As you said deflation discourages investment, but the last thing we need right now is more investment in homes, strip malls, fast food joints, nail salons, car dealers, etc…
"

This deflation will not lead to any healing. I really dislike the position that deflation is a normative good. However, I do not see more asset inflation being desirable either. It is best to engineer a slow-roll deflation where the harms (such as unemployment and inability for some people to pay for health care and other services). Give up the search for economic "prosperity" and economci growth; an increase GDP would not increase happiness above a certain threshold. Better to think like a Popperian piecemeal engineer and deal with human suffering instead of trying to aim for "prosperity."

I do not think this deflation will self correct. There is really nothing to invest in even after the delevering is complete except perhaps political manipulated emerging markets.

I think some forms of "malinvestment" as desirable… Bryan Caplan says that we have a "make-work" bias, and I suppose the reason for this bias is that jobs = income (for most people), and it gives people something to do. I do not see any other way to give unskilled labor good jobs except make-work jobs (which Austrians deem as a form of "malinvestment") and other forms of "malinvestment" such as nail salons.

And why don't you buy stocsk right now with your savings? Hasn't the market "cleared" already for that asset class? The prices reflect the market clearing price; that an equilibrium where seller and buyer agree on a single price to conduct their transactions. And you should buy real estate now if you actually believe the hyperinflationist rhetoric.

You're welcome and amen, brother!

IMHO this whole talk of a deflationary death spiral is propaganda by banking elite so they can continue to loot common citizens legally through inflation.

That sounds like Economic Bipolar Disorder. Nasty! I just saw a bipolar patient, and let me tell ya, she ain't no fun! She almost ruined my day. I better double her fees right away…LOL

Vinny

Please allow Vinny to explain this in laymen terms even he can understand: "We'll do all that we can to keep chumps' salaries low, while we'll print money in ever increasing quantities, which, of course, we will swiftly steal."

Vinny GOLD — "a regular, no BS kinda guy"

@Anonymous Jones
With respect I believe "usury" refers not to pensioners or bond owners but to those who rely on over high interest rates. Even so, "usury" practitioners are not the biggest beneficiaries of inflation. The Federal and State governments gain the most. The various governments rely on inflation as a hidden tax increase while the cheaper dollar benefits them as they are collectively the largest debtor(s) in the world.

I was just pointing out in your example you implied that all businesses borrow money this is not true, yes a lot do, but some don't. Believe me I understand the cost of capital as I've been part owner of a handful of private companies during my lifetime.

Don't know much about the Austrian Capital Theory or Minsky's either. But, what I do know is that deflation is not the evil most claim it to be and inflation is much more sinister than most admit. Which is the point of my post.

You claimed that the problem with deflation is its NOT self-correcting to which I call bullsh!t. There are many savers like me who have plenty of cash and are patiently waiting on the sidelines for prices to clear.

Savers will step in and buy assets; businesses and homes when it makes economic sense to do so. When businesses are allowed to fail the excess capacity is removed allowing surviving businesses to prosper.

Like I said deflation was quite common prior to 1913 and we survived. Instead of propping up failed businesses while trying to inflate another bubble we need to embrace deflation to cleanse the system to allow the savers to reinvigorate the economy.

I strongly suggest you read Murry Rothbard's "America's Great Depression" Bush and now Obama are making the same mistakes Hoover did to make the situation worse, its quite eerie.

The problem with Austrian Capital Theory is that it's only half of a capital theory – it only looks at the asset side of the equation and ignores the liability structure side. It's implicitly assuming that business investment is primarily financed internally via retained earnings. This simply isn't true in a modern capitalist economy. Minsky's capital theory is far more in line with reality than that of the Austrians.

–RueTheDay