Consumer prices see record drop in Nov.

Good story Frank. There are many of us out here in the swampland that love facts, figures, and numbers. I think I mentioned this a few weeks ago and John W. wanted to debate that we were in a deflationary cycle. Post away John....I'm all ears.

Who cares about consumer prices ? We want to hang Governor Blagojevich, the biggest villain in the land !! Let's forget about the Robber CEOs, or the 600 BILLION DOLLAR PROFITS, by the Oil Corps since the Bush-Cheney administration took Office. I would love to see what their portfolios look like, now, after their terms in Office.
Let's hang the union auto workers, they are the reason, America is in the dumps !! Let's pick on the little guy, we control the megaphone, so we can smear whom ever we choose !! Come on, America, use the same sense you used in electing President-elect Obama ! See through the smear campaign, both in the case of Governor Blagojevich and the union auto workers. They aren't the reason America has failed her citizens. One of the main reasons for the failure is the lack of leadership, to put it nicely, of the past two administrations and we voted them into Office. Wake up, America, we are losing our democratic principles.
SUPPORT OUR TROOPS, BRING THEM HOME, ALIVE AND WHOLE. NOW.

This just proves good news is bad news I guess.

With lost jobs, cut wages and hours lower prices are a blessing.

Suggestion for the Fed;
Lower the fund rates to a negative 1% level. Pay us to borrow!
That's what I'm talkin' about! (ha ha)

Yes, the dread deflation is upon us. But at least we'll have a little comic relief as the air goes out of the tires:

All roads lead to Rod.

Used to be:

All roads lead to Rove.

But now Rod is the great distraction.

Staying in office to spite....whom???

Repubs love it, thinking it will induce a rebirth of their moribund party. (Probably won't.)

Dems are too busy trying to maneuver into position to grab the 3 vacant seats:

Senate
5CD
Gov.

Three vacancies.

$12 million just to fill Rosty's/Rod's/Rahm's seat.

(Is it worth it?)

Don, really, Blago hasn't been smeared. He has been charged with a very serious crime, backed up by compelling evidence, his own words. He hasn't even bothered to address the people of the State of Illinois on this issue. It's not a conspiracy, it's not a put up job, it's a legitimate prosecution. Fitzgerald is doing the right thing. The Democrats of the State of Illinois are doing the right thing in pressing Blago to resign. This is no partisan witchunt. It is a bipartisan reaction to blatant and unacceptable corruption on the part of our Governor.

Yes, Don, I hear ya buddy, but I have to agree with Liz on this one. If you have some proof, please post a link. I would not put your theory past the pugs, but his own words are pretty damning. I think all poliscumbags need a good flushing out of the system.

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Posted by: Xcellentform | December 16, 2008 10:50 AM
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I will take issue with both the article and your agreement with it because it is based on a much skewed view of inflation, deflation and the money supply.
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First, contrary to what the article seems to indicate, inflation is not merely the increase in overall prices. Inflation means the money supply is larger than necessary to account for the total value of the goods and services. Money functions as an exchange commodity, meaning it is subject to the law of supply and demand. Having too much money means there is less demand for it and, hence, more is required in exchange. Thus, inflation can be caused by either creating too much money or having a contraction in the total value of goods and services. In either case, the market eventually demands more money to adjust fir its decreased value. In like fashion, deflation occurs only when there is a decrease in the money supply in relation to the total value of goods and services. Thus, at best, we can say that price increases and decreases are, respectively, SYMPTOMS of inflation or deflation, but not inflation or deflation themselves.
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Second, as you may have surmised from the foregoing, an economy can experience both inflationary and deflationary phenomena at the same. For example, the money supply can shrink from the contraction of credit (which is a surrogate for money) while, at the same time, the Federal Reserve Bank and the government create more money. All the same, whether we have “inflation” still depends on the overall relationship of the money supply to existing goods and services. As long as the money supply is greater than necessary, we have inflation. Therefore, it is not true that we don’t suffer from inflation simply because deflationary forces are at work. The state of inflation ceases to exist only when a contraction in the money supply or an increase in value of goods and services brings the two into parity. Even the article describes inflation as rising slowly today. It doesn’t claim that inflation is non-existent because of a perceived deflationary trend.
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Third, there are causes for price fluctuations other than inflation. Rising or falling prices are also symptomatic of the level of supply and/or demand in the market for particular goods and services. Scarcity will drive prices up, as will an increased demand for what was once an abundant commodity. Similarly, an overabundance of goods or a lack of demand (for whatever reason) will cause prices to fall. Thus, to accurately equate rising or falling prices with inflation or deflation, one must first eliminate the supply and demand factors from the equation.
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The foregoing considerations explain why the Consumer Price Index - featured so prominently in the article - is a poor gauge of inflation and deflation. The CPI only tells us if the price of certain indexed goods and/or services have increased or decreased. It does not distinguish, nor can it distinguish, between fluctuations caused by relative changes in the money supply versus those caused by changes in supply and demand. Thus, it is impossible to say that inflation is slowing or deflation is increasing based on changes in the CPI. These changes could very well reflect a change in supply and demand. And, indeed, there are today a number of factors which hinder consumer demands for goods. The credit crunch, for instance, has lowered market demands for goods and services that can only be purchased through credit. The auto row down the road is turning into a ghost town because of this. In addition, lower market demand is likely caused by a worried public induced to spend conservatively. High priced gas has gotten people into the habit of driving less, car-pooling or telecommuting when possible. Look what that did to the price of gas. Likewise, all those five-year-old washers and dryers will have to work for another one to four years or as long as people worry about putting food on the table. Again, these are factors for which the CPI does not account.
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So, you can go ahead and believe we are somehow in an overall deflationary cycle if you want. However, nothing you have said before supports this notion, and neither does anything stated in this current article. To the contrary, the FRB is doing a lot of stuff to inflate the money supply including “quantitative easing” and its plans to lower its lending rates further. (And, contrary to the article, it does have to worry about inflation.)

John W., I always chuckle a little bit when you say we have inflation and deflation going on at the same time....brings back fond memories. That said, I agree with most of what you say, but I think there is a terminology issue. Inflation refers to goods, and monitary inflation refers to money. http://en.wikipedia.org/wiki/Inflation

Yes, we are printing money like a fish breaths water, and yes, that will come back to bite us in the inky next year, causing monitary inflation, but right now prices are deflating.

Also, I must read the numbers a bit differently than do you, as when the article says we have a "1% rise in inflation over the last 12 months", I interperet that as 10 months of rising price inflation, coupled with 2 months of sever deflation, to equal a modest 1% increase. Most governmet numbers like that are lagging behind what is happening out on the streets right now. If 12 months includes December in, then we have deflation for the previous 12 months.

Either way, I find it funny how many of us in swampland can write as much interesting stuff (and sometimes more detailed/ factual) than what the original article has in it. James could've spearheaded some of this with a little more details.

“John W., I always chuckle a little bit when you say we have inflation and deflation going on at the same time....brings back fond memories. That said, I agree with most of what you say, but I think there is a terminology issue. Inflation refers to goods, and monitary (sic) inflation refers to money. http://en.wikipedia.org/wiki/Inflation”

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Posted by: Xcellentform | December 16, 2008 6:36 PM
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1. Go ahead and chuckle (at your own mistake). I never said we had inflation and deflation at the same time. I said we can experience inflationary and deflationary forces at the same time. The two ideas are not the same. One can pump air into a tire while simultaneously loosing air through a leak. That the same thing can happen to the money supply is not a difficult idea to grasp. In any event, I went on to say that there is a single question of whether we have an inflated money supply based on its relation to the supply of goods and services. My point was that, despite the existence of deflationary forces, the money supply is still too large and, hence, inflated. I don’t know how to word this any differently to make it clearer.
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2. I read the Wikipedia article you cited. If you read the article the Wikipedia article cited ( http://www.clevelandfed.org/research/Commentary/1997/1015.pdf ) you would discover that it decried the definition of inflation to mean “price inflation.” The author, writing for the Federal Reserve Bank of Cleveland, blamed this blurred terminology on Keynesian economics which identifies too many different kinds of “inflation.” The author, in my opinion, is quite correct. By using the term “inflation” to identify too many disparate phenomena, all of which have different etiologies, the term looses any meaning. In any event, contrary to what you have suggested, there really is no official or standard use of “inflation” to refer to “price inflation” versus “monetary inflation.” Use of the term “inflation” to describe price increases is a populist notion and not a term of art. That is, in fact, why I spent some time drawing the distinction. Failure to make the distinction masks too many mistakes. Frank James isn’t to blame for repeating sources that employ the term incorrectly.
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3. Finally, if we assume you are correct that “inflation” properly refers to a general price increase, and “deflation” refers to general price decreases, then one still has the problem of relating it back to the dilemma originally posed by the article, to wit: that deflation reduces “the power of companies and workers to charge what they need to in order to make ends meet.” It is a non sequitur. The CPI is an index of consumer goods, and not of the industrial output of the rest of the country. How that relates to the cost of production to manufacturers or workers is uncertain at best. A downturn in consumer purchasing is not going to affect all companies or workers equally, and it will hardly affect companies and workers whose primary purchasers aren’t consumers - in which case the problem is still overblown. If, on the other hand, the original AP author was trying to convey the idea that lack of income due to the downturn in consumer sales is bad for business, it merely illustrates the level of obfuscation that arises from the misuse of terminology.

Come on guys. This all you need to remember.

1. Inflation; Too many dollars chasing too few products.

2. Buy low, sell high

Come on guys. This all you need to remember.

1. Inflation; Too many dollars chasing too few products.

2. Buy low, sell high

Posted by: C.Morris | December 16, 2008 11:16 PM

Actually, C., I've been enjoying reading this exchange; some intelligent conversation, with actual facts, in place of the name-calling, overpunctuation, and SHOUTING that characterizes too many of the posts on this site.

The changes on credit card legislation will have absolutely no real impact on consumers and their use of credit cards.

JUST LISTEN TO BERNANKE …
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http://pacificgatepost.blogspot.com/2008/12/bernanke-and-perpetuating-credit-card.html
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Issuers will continue to be abusive of all card holders.