http://www.ritholtz.com/blog/2009/07/wage-deflation-in-our-midst/ Another piece of the deflation puzzle.... Inevitably falling into place....
An excerpt... "... The op-ed column by Bob Herbert in the Saturday New York Times really hit the nail on the head on this whole âgreen shootâ issue â how can there be âgreen shootsâ when the labour market is deteriorating at such a rapid clip fully nine months after the Lehman collapse. The full brunt of the credit collapse may be behind us, but please, the other two shocks, namely deflating labour markets and deflating home prices, are very much still front and centre. For every job opening in the USA, there are more than five unemployed actively seeking work vying for those jobs. That is unprecedented and nearly double what we saw at the depths of the 2001 recession. The official ranks of the unemployed have doubled during this recession to 14 million and if you take into account all forms of labour market slack, the unofficial number is bordering on 30 million, another record. For those who still believe that we somehow managed to avoid an economic depression this cycle because of a 13% fiscal deficit/GDP and a pregnant Fed balance sheet, the Center for Labour Market Studies at Northeastern University estimates that the real unemployment now stands at 18.2%, which is actually higher than the posted rate at the end of the 1930s..."
................................................................................................ At the moment....here is what lies ahead.... Simple speak.... Previously....$70 Trillion economy $30 Trillion was lost by the banks....an amount more than all individual savings deposits.... Govt. policies to date have added over $12 Trillion back in debt....mostly given to those that lost the deposits.... Thus the choice of debt has already been made.... So what appears to be an economic lift.... Is only a mirage.... ..................................................................................... Inevitably.....a broad based consumption tax is coming.... But not in such a way as to stimulate....but just to try to float a govt. that refuses to downsize with the economy....
I agree that wages are deflating. But as you know...(or you should know) is that wages in an inflationary or deflationary economy are the result of already inflating or deflating prices and its really the last thing to get affected in an economy. That huge deleveraging last year which deflated the dollar is now kicking in to wages and the wages its not kicking into is resulting in more unemployment. Just in my area I have noticed prices going up at all the fast food places. The dollar is also losing ground. As i write this the dollar index is .7952 and falling. I can understand how you think deflation is happening, but its not. You can not print trillions of dollars and have deflation. Its not possible. It is possible to manipulate it for a little while, but that only makes it worse later. Its like a hot new Toy that comes out. You make a billion of those toys, you can release them 100k at a time and drive up demand but when demand drys up you put them all on store shelves. and then the prices dont keep going up. It goes down. Government is putting trillions of dollars on store shelves. The price is sure to fall.
Yes, but: 1. That money can't get into circulation! 2. People's attitudes are changing towards savings, worsening #1 above. 3. #2 adds to decreasing monetary velocity. 4. #3 causes wage deflation 5. #4 limits creditworthiness & borrowing, hence causing the problem with #1. Eventually, will we have problems - probably. But since the democratic admins solution to things is to tax wealth (thereby further removing money from circulation and decreasing velocity by paying off debt), where is the inflation? Gyrations aside, until people look at homes as an inflation hedge and short term rates crack 3%, I don't buy it. Not one bit.
his chart does not really prove anything. It has mostly meandered up and down in a wide range, with the chart extended just far enough back to make it looked like it started very high. This is called "cherry picking" an example.
Not now, look at money supply. Banks "print" more money than the Fed by fractional lending. Not only banks are not lending, they are returning the Fed "loans".
Well #2 wont last long. With oil prices going up, food going up, and people losing their jobs and the relatives have to support them, those savings rates will not stay up forever. So that money will start to be spent, then they will borrow from their credit card to help support Uncle Joe that cant find work. So right there erasing #2 just erased #3,4 and 5.
......................................................................... Simple speak..... Previous economy.....$70 Trillion Over $30 Trillion was lost..... Another $12 Trillion was borrowed/swapped for bad receivables....meaning further not for long hidden losses.... Now there is a $70-30-12= $28 T Available to price what is left..... The Fed politico solution.....to take even more from a diminishing base.... Solution....increase the base.... How ? Start over.... Start with 10/5 C tax..... In the past ....2 solutions.....restructure or inflate.... In freedom's name.....one must restructure.... Otherwise become a person of the state.....whereby freedom is a passing theme once upon a time.....
Well why would you expect wages to go anywhere but down when weâve replaced GM with Wal-Mart as the number 1 spot? On top of that weâre happy about it. We feel good about bashing GM into bankruptcy for paying their employees âtoo muchâ and then want to give the rich more tax cuts so they can create more Wal-Mart jobs. The car companies go into bankruptcy and get sold off to foreign companyâs and we feel great about it because now theyâre being âstreamlined.â Let me get this straight, the answer to them not selling enough cars to be profitable, is to close independent dealers who sell their cars and are profitable and employ dozens of people? My question is, how long is it going to be until the Presidential limousine is being made by Toyota? Our economy is like a washing machine. The water is the money and it goes round and round. All the clothes get some water, some more, some less. But then one day, the jeans (the rich people and big corporations) decided they didnât have enough water. So they let China and India drill a whole at the bottom and get what falls out. The washer still spins the water around, except each time the water cycles around, a little water falls out and the socks (the little people) at the bottom get less and less. Eventually the jeans decide they still donât have enough water, so they start adding socks made in Mexico to compete with the made in America socks for the water at the bottom. The cycle goes round and round until the socks have no more water at the bottom and are eventually hung out to dry.