Inflation Obsession: Investors Missing Bigger Threat, Says Todd Harrison

Saying we need to worry about deflation now is like saying you have to worry about the winter in June. Yes there is deflation in financial assets and one day in the distant future that will show up as deflation. But how long was there inflation in financial assets? From the recession in the early '90s? From the recessions in the early '80s? During that entire time the inflation rate DECREASED while financial assets were INFLATING. So, either these two things are inversely related, not related at all, or the lag time is huge. In either case, it's not the relevant thing to be paying attention to at the moment. - Organizer, New York Investing meetup

Some good points expressed in terms of investing in a deflationary environment (General Mills, Proctor & Gamble, and even the large gas station companies as opposed to the oil extractors).

The responssible for the present crisis, beside the over 400 already indicted, are still lose (bank officers who approved those subprime loans, and mortgage bankers and big mortgage brokers, and others). An strong action should be taken to rebilt the public faith and confidence in the economy.

Todd Harrison - where are you from, Mars? You think that there is a real problem with housing prices coming down? Do you realize that the massively over-inflated prices excluded MOST responsible Americans from considering home ownership? Clearly, many who bought homes could not really afford to have them in the first place, and that is why we have a huge foreclosure problem. Your comment on the danger of deflation with respect to housing is pathetically stupid. Is money all you think about, or do you have any consideration for the plight and well-being of regular Americans?

I think the man is right about deflation in the economy, and here is why. The US automobile industry is probably resonsible for the majority of the GDP in the USA. You have to figure, it's everything from auto loans, to commissions for sales people, to auto mechanics, to fuel stations, to the steel industry (making raw material) to tire and rubber companies, to all the small parts manufacturers. Right now, all three US auto makers AND their Japanese counterparts are hurting. They are driving DOWN prices to try to induce sales. This may lead to them placing pressure on the autoworker's unions for pay cuts, and then we will have a DOWNWARD cycle. The same is going to have to happen in many other consumer markets; Sears, Best Buy, Circut City, Walmart, will all have to cut prices to lure people in to spend their money. They will have to go to their suppiers and ask for better (cheaper) prices and the manufacturers will have to ask their employees to work for lower wages. It happened in Japan for the past decade and the USA is setting-up for a similar scenario.

Deflation? I agree that Harrison is from another planet.... Housing deflation? just because the price will (hopefully) go down to "normal" levels (ie. in CA and FL) doesn't mean deflation... Commodities also...we'll be lucky if those that are truly in shortage (like oil) vs. those that are not (copper), will one day come down.. many analysts think that we've reached a new (higher) level in comm. prices that will just stay that way for decade(s).

U.S. Economic Update - Is it Inflation? Western Asset June 25, 2008

To adaosha. I don't feel sorry for the people that are losing their homes at all. Wonder why? I had the same opportunity as anyone else to buy a home for what they market was asking. I said, 'What" $450,000 for a single family home on a half-acre lot, where I can throw a football and hit my neighbor's houses on 3 sides of me? No thanks!' Guess what? I was right! Even now, those homes are overprices - I looked at the foreclosure sales ads online yesterday and they still want $300,000 for those same small homes on small lots. I think when they come down to $200,000, THEN I would be a buyer. People misled themselves into believing that owning a McMansion is/was the family dream. The same folks that bought too much house are the same ones driving too much car (or make the SUV). Good for them. They paid $450,000 for a home that is now worth $300,000. They bought a Ford Excursion that gets 14 miles to the gallon, and it costs them $80 to fill-up their 20 gallon fuel tanks. Here's an old fashioned notion. Live within your means. Save for a rainy day.

yet again, smart and insightful commentary by financial experts reduced to rubble unecessarily by the commentary of blue-collared idiots.

This article disregards the fact that, while short term asset deflation tries to establish a foothold over the next year or so, it will be completely overwhelmed by the tsunami of liquidity being injected by the government. $150B economic stimulus package. $300B FHA mortgage bailout package. Monthly $75B bank loan auctions. Follow-up economic stimulus package. Midwest flood relief package. Step-up in federal student loan program. Serious deflation won't stand a chance.

This article disregards the fact that, while short term asset deflation tries to establish a foothold over the next year or so, it will be completely overwhelmed by the tsunami of liquidity being injected by the government. $150B economic stimulus package. $300B FHA mortgage bailout package. Monthly $75B bank loan auctions. Follow-up economic stimulus package. Midwest flood relief package. Step-up in federal student loan program. Serious deflation won't stand a chance.

Most American seem to want higher house prices and lower gas prices - Apparently because they like driving long distances to work. But it seems to me that we would be better off with lower house prices and higher gas prices - Then people could afford to live where the jobs are and we would avoid some the problems caused by the fact that U.S. uses 25% of the world's oil output, even though it has only about 6% of the world's population.

INFLATION, DEFLATION,STAGFLATION,STAGNATION,CONSTIPATION,ANY OTHER TION'S..... I AM WORRIED ABOUT OBAMATION AND MCCAINATION...DOES ANYONE OUT THERE BELIEVE ANY ONE OF THOSE TWO GYRO'S CAN FIX THIS UNBELIEVABLE CRISIS THAT WE ARE IN ..I'VE BEEN THRU MANY RECESSIONS AND HARD TIMES. THIS MY FRIENDS IS THE WORSE I'VE SEEN AND BEEN IN, IN SIXTY-FIVE YEARS THAT I CAN REMEMBER..IF THE AUTO COMPANIES START LAYING OFF...LOOK OUT....

US auto is responsible for ~ 3% of GDP. That's nothing.

Securities prices typically deflate when there's inflation in consumer and producer prices. That's because they're worth less as interest rates have to rise in order to stop the consumer level inflation. The reverse also occurs. As for housing, prices inflated to levels that are not sustainable, and have a ways to go down (in markets like CA). This has to occur; any government moves to stop it will only spread the pain over a longer period of time. The above should be so obvious that I shouldn't have to write it.

What ?? It's the american way to drive a big car and live in the biggest best house I can buy. I don't give 2 cents for what the rest of the world thinks. I'm more terrified of the liberals coming into office and trying to force those of us who believe in the american way, back into the Jimmy carter years.

Try using wind and solar power to move your car. Look around your room right now and tell me if you see anything made out of plastic. Gonna replace that with wind and solar? How about the roof shingles on your house, or the pavement that you drive on? Gonna fertilize the crops for 300 million citizens using wind power?

Jimmy Wang - don't assume that these are blue-collered idiots because they either can't spell or can't type. I know plenty of white collars that have the same problem, and these are the same ones that typically bought more house than they could afford and drive gas-guzzling cars and trucks.

I doubt it. We've had inflation for almost 70 years almost without let up. It enables us to pay off the national debt on the cheap. Why would our practice and policy change?

There are two kinds of inflation, shortage inflation and printing press inflation. With regard to energy, there surely is a shortage. The proof of this is that in countries who are running no deficit, i.e. not using the printing press to get along, energy costs are nonetheless rising rapidly. The US is fighting a trillion dollar war paid for by the printing press. But 8 years ago the US government had relatively fine finances. The]public debt was decreasing noticeably. If there are a few more Bush/McCain years, the oil price will REALLY take off in the US.