Thank you again for your thoughtful reply and correcting my misconceptions.A few points worth mentioning:
- First, a lot of people don't realize that deflation is a lot like gravity -- it's a natural economic force that is always acting to push prices down. Barring any other economic impetus, an economy will naturally tend towards deflation. This is simply because economic, business and manufacturing processes tend to get more efficient, and with margins staying the same, prices will naturally fall. So, if there are no outside forces acting on the economy (think: the Fed or Congress), deflation will occur over time;
- Next, people aren't spending a ridiculous amount of money. 4Q20 GDP growth is forecast to be about 2.8%, or pretty close to the average over the past 10 years. And annual GDP *contraction* is looking to be about 3.6%. Spending is much more on track than it was 6-9 months ago, but it's still far from stellar;
- Third, consider that stimulus money is likely to run out at some point soon, and deflationary forces occur when demand for goods and services drop. When there is less money flowing through the economy -- like there may be in the near future -- deflation is much more likely;
- Finally, consider that with the income/wealth gap widening, more money is flowing to the wealthy. What do wealthy people do with excess money? Hint: They don't buy more groceries or consumables. They buy assets. So, poorer people will be buying fewer commodities and wealthy people will be using the money to buy assets. This will lead to asset inflation, but CPI disinflation (or perhaps deflation).
Put all those things together, and it's not hard to imagine a pretty strong deflationary force.
Of course, there's also forces on the other side -- increased money supply, low interest rates, compressed cap rates on investments, etc. -- which tend to favor inflation.
Depending on how strong the forces are on each side -- which will very much depend on Fed and Congress decisions over the next 12-36 months -- things could go either way.
That said, the Fed wants inflation. And the Fed generally gets what it wants. So, if I had to bet, I'd bet on inflation...at least long-term...
It turns out I was incorrect about people spending like drunken sailors, which is good info to know.
From your post, it looks like you still believe the bet is inflation, though you did a good job explaining how there are deflationary forces at work, and what they are.
@MJ DeMarco I'm constantly reaching to react to a post with a "thanks" instead of a "like" or "love", and I'm also always looking for a "thanks" emoji (usually the praying hands). If you're reading, I put in a vote for those two things to be added to the forum. @JScott's post above is an example of where I'd use one or both.
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