Bloomberg’s Handy Guide To Why Falling Prices Are Horrible For You

Bloomberg’s Handy Guide To Why Falling Prices Are Horrible For You (ZeroHedge, Jan 22, 2015):

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!

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Having read all that propaganda, here is what QE did for America’s inflation expectations…

 

20150122_ECBQE

And what Portugal’s economy minister said this morning…

  • *GUINDOS SAYS EUROPEAN DEFLATION IS POSITIVE

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Awkward!

1 thought on “Bloomberg’s Handy Guide To Why Falling Prices Are Horrible For You

  1. Deflation is bad because of what Bloomberg said and far more. It hurts those who owe money the worst, as Bloomberg mentions. I don’t often agree with Bloomberg these days, but deflation and runaway inflation in food is what I am seeing. Rentals have gone up dramatically, and food is so expensive, even my more prosperous friends are taking note. Lamb is only one example, the same with good cuts of Prime Rib. Even Chicken is three to four times the price it was a couple of years ago. Food prices are certainly not suffering deflation.

    Deflation is occurring in the EU, but not in the US. Prices are higher for vehicles, homes……….everything people need. Perhaps they are pounding the deflation drum to hide the inflation we experience in everything we need. Drinking water has gone up 50% in the last two weeks, from $1.00 a gallon, to $1.50.

    If they say black, the truth is probably white.
    Jobless claims are over 300K again……….I don’t think the unemployment checks will cover their costs……assuming they get unemployment.

    If they are crying deflation, they are trying to cover up the truth…….inflation. Printing all that fake money breeds inflation, not deflation.

    When we had a deflation in the 1930s, our currency was backed with gold, we had responsible people in charge, and money was scarce……..causing prices to drop. People who could get money found it went a long way. I sincerely doubt that will happen with a currency nobody else in the world wants. In the 1930s, we were the world’s largest lending nation, and the emerging MFG power of the world. Today, we are a shell of our former self, and I don’t see deflation……….at least historically. When a currency is published without responsible controls, the usual response is inflation…………..a total horror for those on fixed incomes, like the elderly..

    So, although I believe what Bloomberg says about deflation, I think the opposite is happening……..as usual.

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