Gary Shilling: Deflation Descends Upon The U.S.

[RedEarth]

For years, we've been forecasting that chronic deflation of 1% to 2% per year would start with the next major global recession. Well, it's here!

In October, the U.S. producer price index fell 2.8% from September, and the consumer price index dropped 1%, the biggest decline since before World War II. Sure, the big driver was the decline in energy costs, but even excluding food and energy, consumer prices dropped 0.1%. As retailers panic in the face of retrenching consumers, prices of many items have nosedived.

Dell is offering 20% to 30% discounts on new notebooks. Nearly empty Hawaiian hotels give free drinks and all sorts of discounts. Retailers like Crate & Barrel have gained pricing power over vendors and are getting 10% to 25% lower prices to pass on to customers. Kohl's is discounting Christmas merchandise up to 75% to attract shoppers. Toys are being discounted 50% to 60%, and sellers are emphasizing low-priced merchandise to attract frugal buyers. Just look at Wal-Mart.

Grocers are also gaining pricing power over suppliers of branded goods, as consumer zeal for house brands gives retailers more leverage with producers of national labels. Upscale retailers are unloading excess inventory on discounters who then offer designer apparel for 45% to 70% off list prices. And luxury goods makers themselves are slashing prices on apparel, shoes and handbags sold in the U.S. Of course, the strong dollar makes that easy for eurozone-based firms. Don't forget that recent auctions were disappointing and saw prices of contemporary, modern and impressionist art drop 30%.

The Fed worries that in deflation, offsetting monetary policy is difficult since its target rate has to stop declining when it reaches zero. Of course, the Fed has other tools, like quantitative easing (juicing the money supply). Nevertheless, all these measures amount to leading the horse to water, but he may not drink.

http://www.forbes.com/financialadvisernetwork/2008/12/09/deflation-lending-saving-fan-ii-in_ags_1209soapbox_inl.html

[mrreowwr_kittty]

1. Could someone tell these rocket scientists that people don't buy things when they don't have JOBS.

Or they're worried about the ones they've got. You can lead the horse to credit but you can't make him drink it if he doesn't have a JOB.

[TygrBright]

3. Nail: Head: BANG! n/t

[county worker]

4. Daily I read that the economy is bad because consumers aren't spending.

They say 2/3 of the economy is based on consumer spending. So it seems to me the thing to do to get us out of this mess is to get money in the hands of consumers. That means jobs and credit. Anything else seems to me to be wasted money and effort. Put 7 billion in the hands of consumers not banks who are using it to buy more assets and not lending!

I don't know how long it's going to take for us to get over the conservative trickle down ideas. They have been deep seeded in our brains ever since St. Ronnie's time. All that has done is make the spread between the haves and have-nots grow wider. The middle class is disappearing.

Still we will buy the meme that it isn't good to make it easy on the little guy. Just give the rich more wealth and the little guy will be ok.

Well that seems to me like a banquet where the rich sit at the table and we are on the floor looking for crumbs. We're told to heap more and more food on the table and more and more crumbs will fall down to us.

I say let's all sit at the table!

[mrreowwr_kittty]

5. I've been calling it the Trickle Down Bailout from the beginning.

It's an accelerated version of Reaganomics. Instead of it taking 30 years, it's taken a few weeks.

[Laelth]

2. That is bad news.

Nobody buys products when we're in a deflationary spiral, and the economy grinds to a halt. Not good at all.

The United States is a LIBERAL Country.

:dem:

-Laelth