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Author: jiml8 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10561  
Subject: Re: Who Said Deflation? Date: 5/8/2003 5:55 PM
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Unemployment isn't staying at 6%, it is continuing to rise.

We are presently experiencing modest deflation in many sectors of the economy, including housing. Autos are down a couple points in the last year. Food is down. Electronic down - but then that is nothing new.

Consumer durables are down. Basically, what we have here is a situation where the cost of most things is dropping, with the notable exception of monopoly suppliers.

Housing sales prices continue to rise, but reduced interest rates and grossly favorable purchase terms result in the cost of owning a home dropping. The commercial real estate sector is in severe distress in many, perhaps most, areas of the country, and the banks are beginning to feel a distinct sense of panic over the prospect of huge real estate defaults in the commercial sector.

Against this backdrop, the Fed is running out of room to maneuver via interest rates, and consumer debt is at historic highs with substantial evidence that many people are spending capital to maintain lifestyle. Sooner or later, they'll run out of capital.

The money supply is being pumped up madly, with the clear goal of averting a depression. I strongly suspect the depression will be averted, but when this cycle unwinds as it inevitably must, we'll probably have a rapid bounceback to high inflation as the effects of all that money are felt.

We live in interesting times.
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