July 22, 2010 – The New Deflation Definition

Featured Trades: (THE NEW DEFLATION)


2) The New Deflation Definition. It seems that all you hear about these days is deflation. That is certainly what the bond market is telling us, with my screen blaring at me a miserable 2.93% yield for the ten year Treasury bond. But there is a new definition for this economic malady that applies to us hapless consumers. In the new deflation, the value of our income falls, while the prices of things we need to buy are going through the roof. It is a particularly pernicious form of deflation, as it is burning our candles at both ends at the same time. Take a look at the chart below, showing the cost of college tuition versus the consumer price index and home prices. This hits home particularly hard, as I have just helped put three kids through college, and am reduced to riffling through the sofa cushions looking for spare change in order to meet the bills. When I graduated from the University of California in the seventies the tuition was $3,000 a year. Today it is $12,000, and climbing at a 30% annual rate. The saddest part of the story is that rampant wage deflation means that recent graduates have a grim choice between taking a poorly paid job, or no job at all. That leaves them woefully unable to repay the student loans they ran up to obtain their rapidly devaluing diplomas. And if you were planning on becoming a teacher, forget it, unless you want to move to Saudi Arabia, Russia, or South Korea. After watching tens of millions of jobs get shipped to China over the last decade, did you expect anything less? Just ad this problem to the ever lengthening list of ways we are getting screwed.

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Deflation Can Be a Bitch!

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