Moderator: Global Moderator
Hah, maybe if I figure out how to do it in python. This one was a little bit too manual to create. Don't hold your breath but I mightSlotine wrote: That's an awesome visualization.
Care to do one for Japan? That bottom half seems so unloved
The stock market would still do well during a "prosperous deflation". If deflation was running at 5%, then the stock market only needs 0% nominal returns to produce a 5% real return. I'd be very happy with that. Also STT and LTT would be returning the same 5% real (assuming nominal rates stay above 0%). If this occurred on a global scale then gold would not do well, but if this "prosperous deflation" was a local phenomena then gold could hold it's own. Gold is always a wild card since it is a global asset currency.k9 wrote: Of course, I don't advise to swap LTT & HY, because HY will hurt a lot during recession + deflation (because of credit risk, of course) so that is not worth the risk, but I don't understand why LTT is said to be the #1 asset to hold during good deflation.
It could work, it would just require everyone to understand money differently. Rather than expect an increase in salary, they should expect a 4% decrease, which still results in a 1% increase in purchasing power (assuming we have 5% deflation). All manufacturers would have to lower their prices over time, since more goods and constant/falling money supply. It would be extremely difficult for most people to initially accept, but after awhile it would become normal.RuralEngineer wrote: I'm not sure prosperous deflation is even possible, at least not at significant levels of deflation. I struggle to imagine a scenario where businesses are constantly being forced to get requotes from their suppliers in order to avoid a 5% hike in the cost of their inventory. I don't see businesses being able to cope with more expensive inventory, massively higher labor costs, and still have "prosperous" returns.
but in my mind both are just as fruitful. Or imagine that over time the value of a touchdown and field goal were decreased by 10% a year...is the act of achieving that touchdown any less valuable than the previous year? It doesn't matter that the touchdown is worth less, just as long as you have produced more than your competitor to win the game. It still required the same amount of work to achieve and the results are the same, the only difference is the accounting is different.I see what you're saying from a theoretical perspective, and I can understand how something like this could be tolerated if it was very short term or part of a fluctuating cycle where a true deflationary environment didn't last for years on end and wasn't significant (5% is significant).Gosso wrote: It could work, it would just require everyone to understand money differently. Rather than expect an increase in salary, they should expect a 4% decrease, which still results in a 1% increase in purchasing power (assuming we have 5% deflation). All manufacturers would have to lower their prices over time, since more goods and constant/falling money supply. It would be extremely difficult for most people to initially accept, but after awhile it would become normal.
If it continued for a hundred years then a pack of gum that currently costs $2 would fall to 1 cent. It would be the exact opposite of what we've seen over the past 100 years. I see no reason for this to stop the economy from growing...other than cash being too valuable, and the national debt would become unbearable after awhile.
However, I don't expect a prosperous deflation with Bernanke and Obama at the helm.
I can think of the computer industry, too. I know it's hard to imagine a general prospere deflation in a fiat-money situation, though.Slotine wrote:Japan.RuralEngineer wrote: I'm not sure prosperous deflation is even possible, at least not at significant levels of deflation. I struggle to imagine a scenario where businesses are constantly being forced to get requotes from their suppliers in order to avoid a 5% hike in the cost of their inventory. I don't see businesses being able to cope with more expensive inventory, massively higher labor costs, and still have "prosperous" returns.
It's been bouncing up and down around that positive x axis. One way to think of prosperous deflation is that its really is part of a zero price level with a lot of noise. That is, it's not a steady state equilibrium - or at least you don't want it to be for those very reasons you outline. But it can occur easily enough and for quite a long while as these cycles can last for many, many, years.
STT and LTT are not only for deflation. They can do quite well during prosperity, since there is a good chance they will have a positive real yield (ie 1980-2000). STT can also be a very good inflation hedge, since the Fed should increase rates when inflation starts to creep up. If the Fed doesn't then gold will do well since STT will have a negative real yield.k9 wrote: I can think of the computer industry, too. I know it's hard to imagine a general prospere deflation in a fiat-money situation, though.
But then, let's state deflation cannot be prospere. Since we hold one asset per economic situation, we have prospere inflation (stocks), recessive inflation (gold) and deflation ; why hold both cash & LTT for deflation ? We have 50% of our assets for just one economic situation, isn't that too much ?
