what do you guys think of deflation?

Well, as I write this, the 10 year T-bond yields 2.94% and the 30 year yields 3.95%. After tax, the net is much less. As you state, the government understates real inflation, and it seems unlikely that the bonds do more than break even after tax, with substatial risk if inflation and/or interest rates increase.

Deflation and mortage defaults will lower the price of houses, not raise them. I agree that deflation will hurt those heavily indebted, and the liquidation through default from the prior boom will go on for years. This isn't so much a condemnation of mild deflation as it is of carrying large amounts of debt and inflating in the first place. We are where we are because of inflation, not deflation.

I don't see inflating the economy out of this to be possible. Too many mortgages are floating rate. The entire national balance sheet is over-inflated, and this won't be cured by more inflation. Destroying capital [which is what inflation does] is no way to save debtors. I've had this discussion with a friend of mine for years. The only way to avoid serious trouble is to not get into it in the first place. But we are where we are and rapidly increasing public debt to try to bail out the private debt is not a solution in my opinion. I disagree with you that pursuing policies that ignore the needs of those trying to preserve a lifetime of wealth will help those trying to build wealth. Balance sheets are always a driver of economic activity since production is directly related to investment per employee, and investment comes from savings. What you are describing is a subsistance economy where the goal is to simply try to live. God help us if that is the best we can expect in America.

 

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I just wanted to add that a year ago I was convinced we will have serious inflation. Now I think it's 50/50 between inflation and deflation. Private debt levels seem to be dropping as fast or faster than public debt is increasing. The increases in public debt may even be causing the collapse in private debt levels. So we may get deflation instead of inflation regardless of preference. So for me, this is a good time to just sit on the fence and wait until the direction becomes more clear.

 

You can disagree with me Cloud, that is fine. I don't have an hour or two here to give a presentation on it and answer everyones questions.

One point that is not arguable I believe is that inflation destroys the value of cash and bonds, while deflation destroys the value of housing, stocks, coins, and metals. Since most Americans effectively have negative cash due to their mortgage and own hard assets, inflation is much easier on them than deflation, given equal scope. I don't see how you are saying inflation destroys balance sheets, since most people's balance sheets are mainly negative cash and hard assets. Maybe YOU have a lot of cash, but most Americans do not. I am trying to explain the effect on the US, meaning most Americans.

Myself I believe deflation is not a major worry. Inflation is much more likely. The lowering of debt is a reversion to the mean of the last 50 years. Also, inflating our way out of this means that the government creates inflation by devaluing our currency. Yes, private savings are hurt, but the real value of the national debt is decreased substantially, making it easier to service.

 

This is why I come to CoinTalk. Cloud should get some of the advertising income!

I have put 8 years of effort into thinking and reading about this.....not even slightly qualified to give an opinion. It really has me on the fence. I feel like a roulette player, stacking his chips on 1/3 red, 1/3 black and 1/3 cash.

All I do know is "in debt" is not where anyone would want to be right now.

 

In debt is actually a good position in inflation, even better in hyperinflation if your debt is fixed rate and you used it to buy an asset, (like a house). Debt is horrid during deflation, fixed rate or not. Of course, debt to buy a steak, (credit card), is never good.

 

I appreciate your time and thoughts. I realize I have some unconventional thoughts about the topic, but I just wanted to throw out some ideas for everyone reading this thread to consider. Thanks.

 

Unconventional is fine, and I did appreciate a chance to clarify my thoughts better. Remember, every conventional thought today was unconventional when it was first proposed!

 

I've based my investment philosophy and decisions on that very point.