Tuesday, January 19, 2016

The psychology of deflation

Everyday you drive past 2, maybe 3, maybe 15 gas stations.  They advertise their price-per-gallon on large, very visible marques.

When prices are volatile, you try to buy on the bounce.

When prices are rising, you keep the tank full.

When prices are dropping....you wait until the needle is below "E".

Gas


Nothing is more in-our-face than the price of fuel.  Quickly, tell me the price of a gallon of milk.  Duh!  How about a pound of pinto beans? Double Duh?  Gas?  Well, it is $1.53 at Quality Dairy, $1.47 at Admiral (but you have to go inside to pay) and $1.50 at Speedway if you have a Customer Perks card.

So why are economists petrified by deflation?

Economic activity is crudely defined as the number of dollars in circulation .Multiplied. by the speed with which they are spent.  The precipitous drop in the price of fuel bends the way we think.

Deflation causes the velocity of money, the speed with which it is spent, to fall into the cellar.  Why buy today what might be 3% cheaper tomorrow?

Economists are already talking about "direct injection", the gifting of every man, woman, child, dog, cyborg, vampire, zombie, Chicago voter....a stipend of up to $10,000 to reverse deflation.

It begs the question, what would you do with a windfall of $10,000?  Would you be one of the wise ones where your actions would produce long term benefits one month, one year, five years afterward?

Fence?  Locks? Food producing trees?  Solar cells?  A still to produce ethanol?  A wood stove?  Chimney pipe?  Equity shares in local businesses?  A new roof on the house?  A used truck?  The possibilities are endless.

2 comments:

  1. That'd go directly to pay off a good chunk of what I have left on the house.

    ReplyDelete
  2. Exactly who is giving away the $10K? What this seems like to me is a theft from somebody. There is an old saying about playing poker with a sucker or mark; and if you don't know who the sucker is, it's you. Help me understand.
    BTW I find your blog very interesting, and read it on a daily basis. I also have planted some trees, black walnuts from Port Clinton Ohio, near my home in Las Vegas. I also have a producing loquat tree that I grew from a seed. The birds, and even my dog loved the fruit.

    ReplyDelete