When Deflation Comes,
Cash Is King
When everybody is certain the
economy and stocks will move a particular way, usually just the opposite
occurs. That's just what happened this summer when deflation suddenly
overtook inflation as America's primary economic problem. Mr. Murphy, of
Murphy's Law, seems to take particular pleasure in messing up the plans of
Deflation, of course, is just
the opposite of inflation. Instead of seeing the value of money fall and the
prices of goods rise, cash becomes much more valuable and prices decrease.
Deflation is clearly in
control today as homes, oil, and even precious metals plummet in price. Now
food costs are beginning to sink. Jobs are being lost in most industries. Most
experts think that wages will also begin to fall within a few months.
The public is starting to
show the effects of the deflationary squeeze. People are selling motor homes,
pleasure boats, and many other big ticket items to raise badly needed cash. A
disturbing 10% of Ohio's adult population is on food stamps. Of course, retail
sales are also weakening.