Thursday, November 20, 2008

In which I wear my Debbie Downer hat. It's fancy.

I am not, by any stretch of the imagination, an economist. In fact, I earned two Cs in my college Economic classes-- one for Micro and a matching one for Macro. Consistancy is key, folks.

Nor, am I particularly well-versed in the world of finance. Not at all. I scored a shiny D in Financial Accounting and promptly dropped that ill-advised minor in Business.

All that being true, one year ago, I sat in my office and whined to a coworker about my fears for the US economy. It was part of my job to read the business pages-- to check stock reports on local companies-- so I could plan our next steps.

I whined to that coworker, bemoaning the drops in stock prices and the chatter about housing bubble and cutting of interest rates, not really having a good grasp on what it all meant for the bigger picture. She said to me, paraphrasing, "Nah, it'll be fine. There's nothing to worry about."

A few months ago, the word "deflation" perked my ears. Someone on the radio said that inflation should not worry Americans, that it wasn't the real danger to our economy. Instead, he/she said, deflation would be the most important thing to watch for as this recession deepened.

Interesting, I thought. And went about my daydreaming of puppies and rainbows, thinking that, with the way things (prices) were going (up, up, and up), deflation would never occur.

Until last week.

My car was nearly running on empty and, instead of filling the tank with $2.04/gallon gas, I filled it up halfway. You see, I saw another gas station cattycorner with gas for $1.99/gallon and I knew that if I waited just a few more days, I could get gas for less than the current price of $2.04/gallon. And, I did. For $1.89/gallon.

This is the danger of deflation. Instead of purchasing goods as they normally would, people make a conscious decision to wait for a lower price that they know will be coming in the future. So, companies drop their prices, trying to find the floor at which consumers will pull out their wallets and consumers hang on to their dollars knowing/speculating that, in just a few more days, that price will drop even more. This, in turn, creates a situation where companies can't make payroll-- let alone profit-- resulting in layoffs, resulting in less able consumers, and so on.

And the economy is all flucked up.

After I participated in my own little deflation experiement, I decided to google "deflation" and see what I could find.I found this article from January 2008, and this one from November 2008.

Suddenly, my friends, I realized that this recession is going to get much worse before it gets better. And a change in the ruling party isn't going to make it any better.

More articles: November 19th and November 20th.

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