Protecting Yourself in Times of Deflation
Bruce David, the PoorMan
Link for free bonus reports at end of article
We are now battling deflation ... and it is potentially a much greater financial storm threatening our economy, our wealth, and even our way of life.
Already, the destruction of American wealth over the past 18 months alone is of historic proportions — a stunning $20 trillion has gone up in smoke. But it's not over yet ...
Corporate America is not putting its money where its mouth is ... in fact, just the opposite is true ...
Directors and officers of public companies SOLD $353 million worth of their own stock in April — that's the fastest pace of insider selling since this bear market began.
Insider sales outnumber buys by a huge 8-to-1 margin! Why else would they so aggressively dump shares ... unless they're convinced NO lasting recovery is coming any time soon?
A third wave of devastating foreclosures is still intensifying, with more than four million home loans worth $717 billion now in distress — UP +60% from a year ago.
Commercial real estate is just beginning to roll over. On top of the $800 billion in residential real estate losses recorded already, banks may suffer almost $700 billion in additional losses on commercial loans too before this crisis is over.
Overview of Deflation
In economics, deflation refers to a general reduction in the level of prices below zero percent year-on-year inflation. Deflation should not be confused with a temporary fall in prices; instead, it is a sustained fall in prices that occurs when the inflation rate passes down below zero percent.
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the annual inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when the inflation decreases, but still remains positive). Inflation reduces the real value of money over time, conversely, deflation increases the real value of money.
Currently, mainstream economists generally believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral. Deflation is also linked with recessions and with the Great Depression. Additionally, deflation also prevents monetary policy from stabilizing the economy because of a mechanism called the liquidity trap.
Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity - contributing to the deflationary spiral.
Since this idles capacity, investment also falls, leading to further reductions in aggregate demand. This is the deflationary spiral. An answer to falling aggregate demand is stimulus, either from the central bank, by expanding the money supply, or by the fiscal authority to increase demand, and to borrow at interest rates which are below those available to private entities.
Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency. In this sense it is the opposite of inflation (or in the extreme, hyperinflation), which is a tax on currency holders and lenders (savers) in favor of borrowers and short term consumption. In modern economies, deflation is caused by a collapse in demand (usually brought on by high interest rates), and is associated with recession and (more rarely) long term economic depressions.
Some economists believe the United States may be currently experiencing deflation as part of the financial crisis of 2007–2009. Consumer prices dropped 1 percent in October, 2008, largely due to a steep decline in energy prices. This was the largest one-month fall in prices in the US since at least 1947. That record was again broken in November, 2008 with a 1.7% decline. In response, the Federal Reserve decided to continue cutting interest rates, down to a near-zero range as of December 16, 2008. Some economists believe over the next two years deflation in the United States may lead to a deflationary spiral that could bring the U.S. into the next Great Depression. Economist Nouriel Roubini predicted that the United States would enter a deflationary recession, and coined the term "stag-deflation" to describe it. It is the opposite of stagflation, which was the main fear during the spring and summer of 2008.
This double- edged sword favors those with an income, who do not own toxic or negative assets. People with steady jobs like Government Officials, Police, the Military, Teachers, and people who own debt free businesses, running at a profit. All you need to do is to save, rather than spend, and slowly join this group of people who should be able to invest in the new cheaper homes on the market, and even stocks that will bottom out in price at some stage.
So how do you start benefiting from Deflation? Make sure you simply save, and go bargain hunting. Life will feel like you can afford that large house, because the price yesterday has dropped to the price of a small affordable house today.
The key is a having a steady income, whilst you save to invest in real assets that will become undervalued, considering experts admit property has been overvalued by as much as 40- 80% in some countries like the UK, Spain and the USA.
Be as liquid as possible and debt-free. Save cash, silver and gold whenever possible. Click on the URL I set up to grab two free PDF reports on Deflation and Gold and Silver ownership.
Also, I updated our site this week to add more resources on legitimate work-at-home sites.