Deflation is back for the first time since 1955 on clarkhoward.com

CLARKONOMICS: We're currently experiencing deflation for the first time since 1955, the year of Clark's birth.

Deflation simply means that your dollar buys you more today than it did a year ago. This kind of thing really freaks economists out. They worry it can feed on itself as people say, "Why should I spend a buck now if it will buy me $1.10 worth in a year?"

People looking to buy homes and cars -- both in oversupply right now -- are obvious beneficiaries of short-term deflation. However, the market will eventually get back into balance with supply and demand in both cases.

The news of deflation has prompted fears of yet another phenomenon called hyperinflation. That's where you can't buy anything no matter how much money you have! Many are concerned that excessive government spending is the culprit here.

Economists are particularly worried about "wheelbarrow syndrome" during a time of hyperinflation. You know, where you need a wheelbarrow of money to buy a loaf of bread.

Not to worry, Clark says. He tracks freight car utilization -- yes, by his own admission he's a very dull guy -- and isn't fretting about hyperinflation.

The nation's railroads are parking freight cars because there's no cargo to put in them. Freight car utilization is down 17% from a year ago. In addition, factory utilization is down.

So that tells him that even with the crazy federal spending, the odds are that we won't have big inflation problems down the road.

Could Clark be wrong about this? Certainly. But he's heartened by the fact that there's not too much demand out there. That's a good sign.

What others are saying

Clark, check your math
As you may already be aware, gas and food are not included in the CPI numbers, so the government's inflation stats are a farce anyway, since they don't accurately reflect the basket of goods that most people purchase.

Secondly, Clark's math was wrong when he calculated the deflation numbers anyway. With deflation of 0.4%, a dollar today would be the equivalent of $1.004 a year ago (that is, one dollar and four-tenths of a cent), NOT $1.04 as Clark suggested. For it to be the equivalent of $1.04 a year ago, deflation would have to be 4%, not 0.4%.

Clearly, even if deflation was actually 0.4% over the last year (which I don't believe it was... at least not for real people who live outside of the government's fairy-tail world), it wouldn't be a problem. However, if deflation was 4%, that would start to be a concern. It's a moot point, though, because the prospects of deflation in the current environment are a joke. Two to five years from now, inflation is going to be the real problem we'll be facing, regardless of the spin the Fed keeps trying to get us to believe. Maybe not hyper inflation, but real honest to goodness inflation.
By Vanilla Gorilla @ 04/21/09 11:32:54 AMreport abuse
don't buy what your don't need.
What you need and what you want a two different things
By terry @ 04/17/09 06:52:18 AMreport abuse
Clark is right on
Inflation will be kept in check due to the fact that factory capacity is increasing. Even with the increase in money supply we will not see a great spike in inflation due to the lack of factory utilization. When demand goes up, they will still be able to produce large amounts without increasing prices. Inflation is caused by supply and demand. The supply capicity is so high, ie clarks railroad stats that even if demand increases it will not spike up inflation.
By BIll @ 04/16/09 11:43:23 AMreport abuse
Sorry, the Price of Baloney is Up Too
Why should anyone believe these government inflation statistics? The price of gasoline has increased in the past two months from $1.50 to over $2. Grocery prices are up across the board, and the university system in my state is forecasting tution increases this Fall of 15% to 40%!

Yes, the price of houses has come down 10% to 20% in the past year, but rents have not decreased at all. The Federal reserve continues to grow the money supply at over 8% on average, so IMO this deflation announcement is pure B.S. from the BLS. More happy talk for the sheep(le), and a way to limit the infaltion-adjusted increases due recipients of entitlement payments and social security.
By Joe @ 04/15/09 10:09:19 PMreport abuse
Inflations
Yeh I'm an old Fart and I remember that as young Sgt E5 in 73 that I was paid the sum of 444.00 a month. And I wonder what they pay an E5 now! that will show you what inflation is. I don't even think you can live on 450 dollar's a month now even if you were on starvation rations, We are fixing to see a lot of bad times to come, when the money rot's again. Rotten money won't buy anything, Federal Reserve Note printed on top of your greenback just means that it is backed up by a promises to pay. Not backed up by gold or silver, so it can be inflated at anytime, just another promises from the politician, if you read this then I reckon your smart enough to see what is really coming.
By Grandpa Gene @ 04/15/09 05:55:11 PMreport abuse
More on Inflation
Clark's response to this deflationary news reminds me of the heavy smoker who just had a checkup and found out he did not have lung cancer. He has now declared that heavy smoking was the right thing to do and he is going to do even more of it.

C'mon Clark. Acknowledge that this crazy money printing and deficit spending will ultimately destroy the people's wealth. We could use a voice of sanity in an increasingly insane world.
By Buzz G @ 04/15/09 05:09:35 PMreport abuse
Inflation
Clark, as a retired economist I know how wrong you are. What is going on now is the result of deleveraging which has come about because of the crash. Deleveraging is right now stronger than the effects of irresponsible money printing and incredible gov't deficit spending. Right now! But some day down the road the deleveraging will be over and then the pendulum will swing to inflation. It will swing swiftly and relentlessly and will destroy wealth as it goes. The only unanswered question is when the deleveraging will end. Will it be next month, next year? Some are even predicting it will take nearly a decade. I won't predict when, but I am certain this crazy spending will eventually produce double digit inflation.
By Buzz G @ 04/15/09 04:39:30 PMreport abuse

Clark, check your math

As you may already be aware, gas and food are not included in the CPI numbers, so the government's inflation stats are a farce anyway, since they don't accurately reflect the basket of goods that most people purchase.

Secondly, Clark's math was wrong when he calculated the deflation numbers anyway. With deflation of 0.4%, a dollar today would be the equivalent of $1.004 a year ago (that is, one dollar and four-tenths of a cent), NOT $1.04 as Clark suggested. For it to be the equivalent of $1.04 a year ago, deflation would have to be 4%, not 0.4%.

Clearly, even if deflation was actually 0.4% over the last year (which I don't believe it was... at least not for real people who live outside of the government's fairy-tail world), it wouldn't be a problem. However, if deflation was 4%, that would start to be a concern. It's a moot point, though, because the prospects of deflation in the current environment are a joke. Two to five years from now, inflation is going to be the real problem we'll be facing, regardless of the spin the Fed keeps trying to get us to believe. Maybe not hyper inflation, but real honest to goodness inflation.

By Vanilla Gorilla @ 04/21/09 11:32:54 AMreport abuse

don't buy what your don't need.

What you need and what you want a two different things

By terry @ 04/17/09 06:52:18 AMreport abuse

Clark is right on

Inflation will be kept in check due to the fact that factory capacity is increasing. Even with the increase in money supply we will not see a great spike in inflation due to the lack of factory utilization. When demand goes up, they will still be able to produce large amounts without increasing prices. Inflation is caused by supply and demand. The supply capicity is so high, ie clarks railroad stats that even if demand increases it will not spike up inflation.

By BIll @ 04/16/09 11:43:23 AMreport abuse

Sorry, the Price of Baloney is Up Too

Why should anyone believe these government inflation statistics? The price of gasoline has increased in the past two months from $1.50 to over $2. Grocery prices are up across the board, and the university system in my state is forecasting tution increases this Fall of 15% to 40%!

Yes, the price of houses has come down 10% to 20% in the past year, but rents have not decreased at all. The Federal reserve continues to grow the money supply at over 8% on average, so IMO this deflation announcement is pure B.S. from the BLS. More happy talk for the sheep(le), and a way to limit the infaltion-adjusted increases due recipients of entitlement payments and social security.

By Joe @ 04/15/09 10:09:19 PMreport abuse

Inflations

Yeh I'm an old Fart and I remember that as young Sgt E5 in 73 that I was paid the sum of 444.00 a month. And I wonder what they pay an E5 now! that will show you what inflation is. I don't even think you can live on 450 dollar's a month now even if you were on starvation rations, We are fixing to see a lot of bad times to come, when the money rot's again. Rotten money won't buy anything, Federal Reserve Note printed on top of your greenback just means that it is backed up by a promises to pay. Not backed up by gold or silver, so it can be inflated at anytime, just another promises from the politician, if you read this then I reckon your smart enough to see what is really coming.

By Grandpa Gene @ 04/15/09 05:55:11 PMreport abuse

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Apr 15, 2009 -- Deflation is back for the first time since 1955

What others are saying