[Loki]

I don't think deflation is unimaginable, it could turn out to be “not all that bad.” A decade or two of stagnation (we're five years into it already) and massive government debt, but nothing Japan hasn't been experiencing since 1990 or so.

$this->bbcode_second_pass_quote('', 'J')apan Learns to Live with Deflation

Ben Bernanke has been lecturing on deflation's perils since he joined the Federal Reserve in 2002 and has often held up Japan as Exhibit A. When the Fed launched QE2, the quantitative easing program to promote credit expansion in the U.S., in November, the central bank chief hoped to avoid the scourge that has devastated Japan's economy. U.S. consumer prices, excluding food and fuel, climbed at their slowest pace since records began in 1959, the Commerce Dept. reported on Dec. 22.

There's something curious about the way the deflation syndrome has played out in Japan, though. The Japanese don't feel that threatened anymore. "Everyone knew deflation was bad for jobs and bad for the economy, but gradually households and companies just got used to it," says Martin Schulz, a senior economist at Tokyo's Fujitsu Research Institute.

Deflation—the steady drop in prices of goods, wages, and services—has many ill effects. Households are stuck paying off mortgages, car loans, and other debt even as their take-home pay has declined. Also, as housing values fall, consumers have smaller nest eggs for retirement. Companies, meanwhile, are unable to raise prices, which puts pressure on profits.

Yet the Japanese have discovered the benefits of deflation as well. Monthly pay dropped to an average 315,294 yen ($3,800) in 2009, the lowest level since the government began tracking wage data in 1990....Price cutting by companies has helped Japanese consumers adjust to deflation. The average household owns 1.4 cars and 2.4 color TVs, about a quarter more than in 1990, a Cabinet Office survey shows. Deflation has helped home buyers, too, by forcing prices down from their peaks in 1990: According to calculations based on yearly Land Ministry data, Japan's residential land prices have dropped by an average of 2.9 percent a year over the past two decades....

All told, the proportion of people content with their standard of living was 63.9 percent last year, compared with 63.1 percent in 1989, a government report said....
In Japan, where 23 percent of the population is over 65, a sudden rebound in prices would hurt pensioners and retirees especially hard. "It's amazing what you can buy with 100 yen now. We didn't have 100-yen stores before," says Sachiko Enokida, 80, who lives on her bimonthly pension checks from the government. "I would hate for things to get expensive again."

http://www.businessweek.com/printer/art ... -deflation

[Quinny]

I think there's an amazing level of optimism among the posters here that assumes that a shrinking 'real' economy can allow capitalism to continue in its current form. Slow crash from a societal POV might work out, but IMHO the current capitalistic system is toast.

[evilgenius]

I may have brought this up somewhere else on this site, but a few months ago on CNBC, I think, I watched this economist talking about the above situation(Nomura graph) vis a vis the US. He brought in peak oil as well. His take was that economic growth is energy dependent. His contention was that the US ought to deficit spend like there would be no tomorrow if they didn't. His target for the money, alternative energy. What he suggested was that having formed the basis for new growth the US would then, at some point, be able to grow out of the situation with its debt.

I tend to agree, but I also think there are structural changes that could take place that might help as well. I would much rather see people who can't refinance right now because their houses are underwater be able to.

[Quinny]

I'm probably classed as an old white guy (53 12 days ago) though feel a lot younger . I've decreased living expenses from around $8000 per month (2008) to around $600 per month over the last few years. I'm still as happy as I was when I was living a much more extravagant lifestyle. I am currently planning on moving to a situation where our expenses will be around $400 per month with no debt. It's sort of semi self sufficient but could be much closer to self sufficient if needs be. Despite a massive destruction of my wealth I can honestly say that I'm going to be more self sufficient in future than I ever was previously. I think that degrowth can be a good thing for some people.

[AgentR11]

$this->bbcode_second_pass_quote('pstarr', 'M')y other point is the old white folks who expect inflationary times forever, need to re-evaluate their expectations. Growth is over. More is over. A better material life is over. Learn to appreciate art, meditation, and what is left of (for you personally) the green earth

[Quinny]

Despite your right wing views, I tend to agree with you that inflation will eventually start to bite, but as you seem to agree it will bite gradually and slowly erode peoples living standards. As a working class lad from a family who earned low wages in a borough that had lower wages than surrounding areas, one of the best times for us when I was a kid was when we had wage constraint imposed. The 'constrained' increases were actually more than my parents and other family would have got normally.

When you start at the bottom you know there is nothing they can take off you and IMHO it's the middle class that are being screwed more than any other class at the moment. If you are living on the edge like most working (and unemployed) people are, if TPTB try to take away your basic right to live you have no alternative but to fight.

I think TPTB will try to 'manage' decline by eroding the middle classes short lived wealth so we end up with a massive working/under class who they will 'control' in the short term. In the long term the people will rise up to change political structures and the system will collapse.

[evilgenius]

To an extent, but I think it is the upper middle-class that will lose out to the capitalist-class. As this thing works itself out the capitalists will buy up the assets that the upper middle-class are desperately trying to unload. They will buy them up with the money they made selling the shares that they no longer needed in order to maintain control of their companies. They will buy them for the simple reason that going forward they will need more shares in order to maintain control, against the interests of other capitalists. It isn't in the nature of the upper middle-class to compete over this. It is in the nature of the capitalists. After they solidify their positions the regime of wage cutting and benefit cutting will begin in earnest.

[ralfy]

It's best to have combinations of assets, especially physical ones. More important, one has to assume that in the long runs, there won't be returns on investment, etc., and that more will have to rely on the use of physical assets, skills, and working with others.