Wednesday, February 29, 2012

Deflation - worst thing EVER


Markets are largely trading well (US hits 2008 highs) but I have two days til this diet is over and I hate every second of it.  I do, however, have a very special occasion coming up in London that I am excited about.   Today a bunch of my HK girlfriends and I all confirmed tickets for glorious ECO (Non-UPGRADABLE) 13-hour flights to Heathrow.  I'm normally fine (or as fine as one can be) with flying Eco except it’s a 72 hour trip and I have to work immediately upon landing back in HK.  When I tactfully suggested the upgradable fare (without sounding like a brat), I was swiftly reminded that we (like Greece) are submitting to austerity measures.  I didn't remember to argue those U$895 Jbrand leather jeans she bought on shopbop aren’t so AUSTERE!!    
I digress (and pray my friend doesn't kill me).  What I should have argued is that US HK and UK are not in a recession (we don't have any Euro-zone friends on this trip).  Actually we were all out of the recession by the end of 2009.  I actually thought (or felt) it lasted a lot longer, didn't you?   Not according to the technical definition for recession, which is simply a period of slowing economic activity (ie jobs, incomes, GDP etc) that last more than a few months. A totally normal/natural (albeit not awesome) part of the economic cycle.  Certainly not the end of the world.  Can actually be great time for bargain hunting (origin of the word recession-ista).  I got my leather pants in the recession at a 50% discount to the above-mentioned U$XXX (Intermix Sale 2009).  

Now why do we want recessions to be short lived?  Well, because prolonged they can spiral into deflation.  And the reason Deflation-ista will never catch-on is because Deflation sucks and nothing's cute about it.  The definition of deflation is simple: a general decline in prices (opposite of inflation).  But the problem is that it literally paralyzes the economy. Deflation essentially tells everyone to hunker down and wait. Instead of buying cars, houses, vacations, consumers wait for prices to fall further.   More seriously, companies delay hiring because they know they can get you cheaper and plants shut down because the price of the goods they make are just too cheap.  You get my point.
I realize it's actually impossible to discuss deflation without referencing Japan (and we will), just not on a day when I've only had 800 calories.

       

No comments:

Post a Comment