Deflation or Inflation: Who Cares?

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switters's picture
switters
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Posts: 744
Deflation or Inflation: Who Cares?

Another interesting article from Charles Hugh Smith:

Posed as the great debate of the era, maybe the deflation-inflation debate offers little practical value to investors.

Though they might disagree on what lies ahead, most financial pundits will agree on one thing: to make money in the next decade, you have to "get it right" on the deflation or inflation question. From at least one point of view, the debate is a red herring and a distraction.

For supposedly being the global answer to investment decisions, the answer (whichever one you select) offers precious little guidance when it comes to actually making investment decisions.

Will $100 buy more loaves of bread (i.e. wheat futures contracts) next year, or fewer loaves? The answer is supposed to be simple: in deflation, more loaves (cash rises in value); in inflation, fewer loaves (commodities rise faster than wages).

But in the real world, drought could send the price of wheat skyrocketing even in a deflationary setting. A huge surplus could send prices down even in inflationary times.

As often noted here, supply and demand still matter, regardless of the inflationary and deflationary pressures on the macro level.

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Deflation or Inflation: Who Cares?

Exactly.......  who cares. All this interest in "securing" one's financial future has me baffled. It's far more important to secure one's physical future than anything else, and if you're cashed up now, then instead of worrying about the best way to make more money, spend what you've got now to get ready for the worst case scenario..... if that scenario doesn't occur, what's the worst you could have done? have a little less money? Really....

Who cares?

Mike

kemosavvy's picture
kemosavvy
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Posts: 254
Re: Deflation or Inflation: Who Cares?

It's incredible how far I've swung on this issue in the past few months. For a long while I was an inflationist, and then for a while I was deflationist, but now I think I've landed on solid ground and realized something.

The reason we debate inf vs. def. is that we've already committed our thinking to the idea that something is fundementally wrong with our monetary and financial system. It seems as if it's a foregone conclusion that we think this way but take a step back and realize what that means.

We have a fundemental flaw with our monetary and financial system.

It doesn't matter who the winner is, inflation or deflation or stagflation or flatulation the outcome will be the same, a destabilizing of our economy. Our economy works on stable prices and stable money. Both of those will be destroyed in the near future.

I'm in precious metals for one reason, the US Dollar is an IOU of its citizens and I don't think the US citizen will own up to the deal (at least not entirely). The gold and silver I have will eventually be converted to a currency that I think will pay back it's IOU's.

Steve

switters's picture
switters
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Posts: 744
Re: Deflation or Inflation: Who Cares?

Mike,

While I agree with you completely about the ideal course of action, the simple truth is that the vast majority of people aren't in a position to take that action for any number of reasons.  Some of those reasons are logistical (i.e. not enough capital to buy land, health problems, etc.) and others might be psychological (attachment to current home/place, fear of change, etc.).  I am in the former camp myself.  I don't have enough money to buy land and build a home of my own.  I'm renting, so it doesn't make much sense for me to buy solar panels and install a greywater system.  We do have chickens and a huge garden, have stored food, etc. but as you surely know that's a drop in the bucket.  So what are folks like me left with?  We try to preserve the little bit of capital we do have in the hope that we can build on it and someday secure our physical future, as you put it.

Chris

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