Playing Catch Up

Bill Tatro
|
Posted: Sep 18, 2014 12:01 AM
Playing Catch Up

The headline was dramatic “Consumer Prices Fall for the First Time in Six Months”. Of course, the pundits say “The main reason is due to the decline in the cost of filling up at the gas station. Steaks and burgers continue to escalate further”.

The resistance in the United States, to what the rest of the world realizes, is amazing to me. The word that encircles the globe is deflation and not inflation.

The velocity of money continues to grind lower. Real household wealth continues to decline. Job quality drops to the point where minimum wages become the topic du jour. All of these factors point to less money in circulation. The so called created money by the Fed’s Quantitative Easing program has somehow NOT found its way to the pockets of mainstream America.

After 2008, credit standards, rightfully so, found their way to a level that the majority of Americans could not qualify.

No cash in the system and no credit for the average person is what a right thinking economist gives as the definition of DEFLATION. Falling prices are a byproduct of deflation as rising prices are a byproduct of inflation.

Deflation is easy to understand when viewed in the context of the employment cycle.

First, sales are made. This action starts it all. The selling of an item requires that it be replaced for the next sale. That requires the item to be produced. Production requires employees. Those employees are paid wages. The wages are used to buy things which keep the cycle going.

It all starts with sales. When that is broken there is no production except for inventory build which ultimately ends. No production means no employees which means no wages and concludes with no sales.

As Family Dollar, Staples, Best Buy and hundreds of others close store after store and discharge thousands of employees it is certainly not because of overwhelming sales.

The picture of deflation is not pretty. Every central banker’s worst fear is realized by the “D” word.

Prices at the pump are coming down so too will it be on every other product. The problem is will anyone have any cash or credit to be able to buy these things even at the lower prices.

Yes, it’s all about catching up, even if it is on the downside.

______________________________________________________

Now available on Amazon.com in paperback and kindle.

44th A Presidential Conspiracy

By William L. Tatro IV

______________________________________________________