Deflation fears rock markets again but consumers see windfall—for now

[TomCADem]

Source: LA Times

For the fourth time in 12 years, the world is facing a deflation scare. And as with any good horror movie, no one is sure what lurks in the shadows.

Since summer, slowing growth in China and severe weakness in Europe and Japan have deepened fears that the global economy could tip into deflation — a sustained period of falling prices for goods and services. Those concerns mushroomed in October as crude oil prices collapsed and nervous investors poured into the relative safety of government bonds, driving yields on some bonds to record lows.

The new year kicked off with another dive in oil prices and bond yields and a slump in stock prices. The Dow Jones industrial average lost 0.5% last week, while the yield on Germany's 10-year bonds fell to an unprecedented 0.43%.

After a lifetime of fearing runaway inflation, some investors now worry that the greatest threat is the opposite: shrinking prices that could undermine wages and the value of real estate, stocks and other assets.

Read more: http://www.latimes.com/business/la-fi-investing-quarterly-deflation-20150111-story.html#page=1

---

Maybe it is time for Republicans and the corporate media to finally acknowledge that Paul Krugman was right and perhaps there is a good reason why he has a Nobel prize in economics. Also, just in case you needed any further confirmation that Fox News' attacks on the Obama administration's economic policies as leading to runaway inflation lacked any credibility.

Personally, it would be nice to earn at least one percent interest on my savings account, but notwithstanding reality, I am sure we will see Tea Partiers' prominently featured screaming that we should stash away gold, hide in a bunker, because of runaway inflation.

[msongs]

1. if you sell property the feds steal 50% of the profit. we could use a deflation on that ripoff nt

[progree]

3. Really? I thought the capital gains tax rate was 0% for those in the 15% tax bracket and below,

15% for those in the 25% to 35% tax brackets, and 20% for those in the 39.6% tax bracket.

And for selling your home, up to $250,000 of the gain is excluded ($500,000 for married couples).

[on point]

6. Not to mention that LT capital gains are adjusted for inflation, so it doesn't figure in calculation

[progree]

12. LT capital gains are adjusted for inflation? I don't think so, I've been paying cap gain

taxes for decades

[on point]

24. Yes LT is adjusted for 'real', not nominal basis of gain. Short term are not.

[progree]

25. Nope. I've been through the worksheets. Never read that anywhere else but right here.

Last edited Sun Jan 11, 2015, 11:14 PM - Edit history (1)

and I read plenty of tax articles, and have a tax advisor. Rather than asserting opinion as fact, how about a link? Please show me the IRS instruction or worksheet that has an inflation adjustment on capital gains.

[on point]

32. Yes, did some research before coming back. You are correct I stand corrected.

[progree]

33. Thanks, I appreciate that, its rare around here that a person will admit to a mistake rather than

just not responding (or worse).

[Yo_Mama]

44. No it isn't, and it never has been.

You deduct your acquisition and qualified investment costs from the sales price.

The long-term capital gains tax rate is lower than the short-term capital gains rate. Is that what you're thinking of?
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

[Hassin Bin Sober]

15. Home profit doesn't have the $250k limit anymore. It's all exempt. Learned it here.

[progree]

16. Did you mean to include a link?

It's all exempt. Learned it here.

If you mean you read it on DU, or any other message board, not everything posted is factual. Way too often, people assert their opinions as facts, or make stuff up just to win arguments.

[font color = red]On Edit:[/font]

If you have a gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic 409 covers general capital gain and loss information.

http://www.irs.gov/taxtopics/tc701.html

[Hassin Bin Sober]

19. I could swear I was arguing your position once and someone proved me wrong.

Maybe it was the lifetime cap on profit I was thinking about. Anyway, you are correct.

[Sgent]

22. They removed the one time exclusion

which used to be unlimited and replaced it with the 250,000 (500 if married). The lifetime exclusion could only be used once, the 250 is available if you lived in the home 2 of the last 5 years.

[PasadenaTrudy]

29. Is this the same

for sale of an income property which is also my only home?

[progree]

30. If you live there, I THINK so ... hopefully somebody can respond who really knows and can

provide a link (so you don't get people asserting opinion as fact like has happened too many times in this thread already). I'm guessing that it's your home (as you said), you live there, and rent part of it out. They might make you exclude the part you rent out from this benefit... I'm really out to sea on this aspect of it, sorry I can't offer you more than hot air and blather. Good luck!

Is this the same for sale of an income property which is also my only home? { re: a $250,000 exclusion from capital gains taxes ($500,000 married filing jointly) }

[font color = red]ON EDIT:[/font] Oops, i just read your profile. Says "apt bldg owner". So if you live in one unit, and rent the other units out, I'd bet you'd get the exclusion benefit on the unit you live in, but not the other units. Best to get professional tax advice on this one!

[PasadenaTrudy]

31. Thanks!

You bet I'd get advice! Not ready to sell yet, but someday we must. I'm 50 and no kids to leave it to. Thanks for responding. I'm betting I'll pay a huge Cap Gains tax naturally.

[TheBlackAdder]

27. Yay! Deregulation works as designed. Insider traders profits in a rigged game. nt

[Johnyawl]

2. When will they admit that it's their austerity policies...

...and the hording of wealth by the 1% that's causing the deflation?

[cstanleytech]

9. When hell freezes over. nt

[bluestateguy]

4. I'm enjoying the low gas prices

And if the market analysts and the screaming yo-yo's on the trading floor don't like it, I'm afraid that's just too bad.

[Fred Sanders]

5. Pity the new fears of the 1%, each tankful in savings is directly from their pockets. About time.

You would think all the dupes that went bankrupt buying Fox pushed Beck gold and survival seeds would get off the nut train.

[BumRushDaShow]

7. "stash away gold, hide in a bunker"

and don't forget - buy plenty of guns and ammunition because someone will inevitably "take it all away them".

[Warpy]

23. Stashing gold only works during periods of inflation

It's a sucker's bet in periods of deflation. Depression stories of men exchanging gold cigarette cases and pocket watches for one meal abound out there. Restaurant owners who took the trade were essentially handing out a free meal since there was no market for the golden goods.

I'm shocked that we're not seeing more deflation since the demand side has been choked off except for essential purchases.

[nradisic]

8. It's time for the 99% to collect

The only folks who hate inflation (as it eats away at all their parked Trillions of $) are the 1% and Wall Street. Tumbling fuel costs and deflation are great for everyone else on this freaking planet.

You pay now bitches!

[Lucky Luciano]

10. Deflation means lower wages.

Deflation means the value of your house and pension going down.
Deflation means means paying your mortgage got more expensive in inflation adjusted terms...while your wages have gone down.

Deflation is not good.

[happyslug]

35. Deflation means the value of your home goes DOWN...

In what is now called the "Long Depression" (about 1872-1898, dates vary) the main problem was the value of land went DOWN, while the mortgages on those lands stayed the same.

here is a cite that claims the "Long Depression" was only from 1873 to 1879:

http://en.wikipedia.org/wiki/Long_Depression
This cite says 1873-1896:

http://www.counterfire.org/articles/a-marxist-history-of-the-world/15498-a-marxist-history-of-the-world-part-61-the-long-depression-1873-1896

The reason for the disparity is dates is technically the recession that started in 1873 ended in 1879, but then the recovery was like the one we are going through today, a slow recovery, followed by three recession, 1882-1885, 1887-1888, 1890-1891 and finally the "Panic of 1893" and the "Panic of 1896". Thus 13 years of Recession in a 23 year period. Most historians call all of this period the "Long Depression" the the shorter time period of the 1873 recession.

To understand the "Long Depression" you have to go back to 1849, and the discovery of gold in California. This was a MASSIVE gold find, something like 10% of all gold ever found was found in Califronia. This massive increase in Gold lead to "Gold Inflation" i,e what one ounce of gold could buy in 1848 was much higher then what one ounce of gold could buy in 1860. Given that people had adopted a poliy of defining their money in terms of Gold, you had inflation, but technically no inflation for it was the value of GOLD that dropped, not that everything else increased in price.

Like most cases of a slow but steady inflation, the economy world wide boomed. Then you had the US Civil War the the US printing money to pay for the war. By 1865 the gold of California had been mostly mined out (Mining continued, but no where near the massive increase of the 1850s).

In the Post Civil War era, (1866-1870), the US ended up using almost only paper money as people hoarded Gold and Silver coins do to the massive inflation of the Civil War Era. Cents were minted as were nickels(only after 1869) for general circulation, but anything over a cent (Pre 1869) and more then a Nickel (post 1869) was done with paper. Yes, the US had 10 cent, 25 cent, and 50 cent PAPER money issued at this time period.

Now, the Economic conservatives who ended up in charge of the Republican Party (and the nation) after 1868 wanted the US to return to the gold standard of $20 to an ounce of gold. i.e. if US Dollars exceeded that price, less money be minted or printed, if the dollar dropped below that price withdraw paper money till the price of gold of an ounce of Gold was $20.

This lead to massive deflation between 1868 and 1898. Farmers (and most Americans were farmers prior to 1920) were the hardest hit, the value of their land and crop dropped, while any outstanding mortgage stayed the same in terms of Dollars. This lead to the "Free Silver" Movement of the 1880s. In 1857, when the US Coin system was last overhauled, the Silver in a Silver Dollar was equal to just under $1.00. This was true of all silver coins in 1857. The problem was in Nevada massive Silver mines were found in the late 1850s and that lead to a drop in the value of Silver in terms of gold, so that by 1900 (and I suspect this was true by the 1870s but I have NOT found a decent cite I can trust on that issue) the Silver in a Silver Dollar was only worth 55 cents.

Thus the "Free Silver" movement of the 1870s, 1880s and 1890s was to mint more silver dollars and thus inflate the US Economy. The 1% opposed this for it meant a drop in the value of their money investments in terms of gold. In 1896 the Democratic Party embraced this concept and barely lost that election even through outspend 8 to 1.

Wall Street was worried, and it appears to be one of the reasons they supported the war with Spain over Cuba, to get people's minds off the deflation they had been facing since the 1860s. Wall Street did not need to worried, Gold was found in the late 1890s in South Africa, Australia and Alaska and by 1900 you had a return of gold inflation and the end of the Long Depression. You had recessions after 1896, but they tended to be short, especially after the Federal Reserve was created so it could inflate the economy when the economy needed inflation (and to withdraw money from the economy when it is to inflationary, which is what the Federal Reserve has NOT done since Reagan).

I suspect Wall Street realized why the economy boomed after 1896 but did not want to say it was do to inflation. When the above Goldfields were no longer able to produce enough Gold to have Gold Inflation, the US Federal Reserve was invented to provide the 1 to 2 % inflation an economy needs to boom. WWI and everyone but the US abandoning the Gold Standard in 1914-1918 and Britain not resuming the Gold Standard till 1924 (and Churchill would later say that was to quick and one of the causes of the Great Depression). What the Federal Reserve could do as to deflation and inflations was only partially effective till the New Deal, when the rest of the Democratic Economic Package first proposed in 1896 was finally adopted by Congress (One of those changes was that the Federal Reserve also consider unemployment when making money policy, something the Federal Reserve did consider till Reagan).

Just some comment on how bad deflation has been in the past and why it should be avoided at all costs. i.e. given a choice between triple digit inflation and deflation, go with triple digit inflation (Triple Digit Inflation had NEVER occurred in a country whose debt is in their own currency, the German Triple digit inflation of the 1920s was a result of Germany owning the reparations under the Treaty of Versailles in currency Germany had no control over).

Other triple digits inflation has also been in countries where the debts are NOT in the currency of that nation, something that is NOT the case in the US, so triple digit inflation is NOT a threat to the US.

[Drahthaardogs]

42. PensionValue goes Up not Down

Your dollar buys more. Businesses may try to cut retirement amounts, but that is not he same thing as an existing pension value or money already saved.

[Lucky Luciano]

45. Equity Investments go down in value and bonds may go up, but

The pensions go unfunded because the 8% targets cannot be made.

[CountAllVotes]

11. This is not good

If you look at this chart you will see that inflation was less in November 2014 than it was in March of last year 2014. It has been in a rather steady rate of decline and it is bad for investors, those with 401K's and the like and the economy in general.

As for those gambling on Wall Street this is a dire warning of LOOK OUT BELOW!

March 2014: 236.293

November 2014: 236.151

No word on December 2014 yet but likely to be lower than November given the deflationary state we are now in.

Wages will stay flat and/or get lower along with the price of that almighty thing called OIL for the time being.

As for people relying on Social Security and the like, well there will probably be no increase for 2016 if this trend continues for much longer as it is based on the consumer price index below:

http://www.inflationdata.com/Inflation/Consumer_Price_Index/CurrentCPI.asp?reloaded=true

While gasoline prices may be lower, the trickle down effect is seen mostly in jobs jobs jobs; poor paying jobs with no benefits that no one really wants. Prices at the grocery store have most certainly declined very little from my observations. Overall, deflation = recession/depression.

Good luck. We are going to need it!

& recommend.

[progree]

13. The BLS's CPI-U shows an increase from March (though Nov. is lower than all of May-Oct)

with July being the peak). (I'm not disagreeing with the general thrust of your posting about the CPI falling, this is just more confirmation of what you said)

CPI-U over the past year:
Nov & Dec 2013: 234.033 234.594

2014:
[div style="display:inline; font-size:1.37em; font-family:monospace; white-space:pre;"] Jan Feb Mar Apr May June July Aug. Sept Oct. Nov
[div style="display:inline; font-size:1.37em; font-family:monospace; white-space:pre;"]234.933 235.169 235.640 236.254 237.083 237.693 237.909 237.428 237.633 237.642 237.032

Series Id: CUSR0000SA0
Seasonally Adjusted
Area: U.S. city average
Item: All items
Base Period: 1982-84=100

http://data.bls.gov/timeseries/CUSR0000SA0

I agree December is likely to be very interesting.

[CountAllVotes]

41. Thanks for that link!

I have another one for the BLS and it is so complicated that I cannot make head nor tails out of it.

We'll see what the #'s are for December!

[JDPriestly]

36. We are retired. Don't buy much gas, etc.

We see food prices rising. My husband does a lot of the shopping and watches this carefully. A lot of food prices seem to be rising.

So whether there is inflation or deflation is, clearly, something the government decides with mathematical accuracy. But for the individual, the overall trend that the government measures may be irrelevant. If you don't use much gas or buy many manufactured items, food and pharmaceuticals plus other services are your main expenses. And they are not goin down. They are rising. So this is very hard on seniors like us.

[CountAllVotes]

43. Exactly!

Best of luck, I know what you mean -- living on a small fixed-income is not easy and deflation just makes it worse! We do NOT need deflation.

[closeupready]

14. Good. Things cheaper means a better standard of living for the poor

and working classes. K&R

[Lucky Luciano]

17. Wrong. Deflation means lower wages for the poor. nt

[closeupready]

18. Well, it means returns on your investments will go down, true.

But it means the poor who are already making minimum wage will see those dollars stretch further. Win-Win.

[CountAllVotes]

20. +1

Deflation is NOT good. Period!

[closeupready]

21. Not good for shareholders and investors, good for the poor

and working classes. Period.

[Lucky Luciano]

28. No. It's bad for everyone - including the poor.

If prices are going down, then people delay purchases...further reducing already shit demand. Vicious cycle starts and with ever less demand, layoffs of many poor (and others) people commences.

Deflation of a serious sort is only associated with depressions.

[Dreamer Tatum]

34. Deflation is what exacerbated the Great Depression. If prices are pervasively low, there's a reason.

It is wage death.

No bueno.

[JDPriestly]

38. Maybe good for the poor, maybe not.

The measure of inflation or deflation is based on the prices for items in a basket that includes a lot of things. If the prices for things poor people buy, like tickets for public transportation, medications, food, go up but prices for things like I-phones, other electronic gear, gasoline, new cars go down, then the poor could actually continue to be squeezed harder than others. Just depends. Sometimes the prices on expensive houses decline butt the prices on rent for the houses of the poor which are in greater demand in times of joblessness and recession remain the same. I'm not completely disagreeing with what you are saying but cautioning that the statistics on deflation and inflation may not be relevant to many poor people. If you are out on the street and you mostly only try to buy a little food and prices on most things are going down, but prices on food goes up, then for you it is inflation, not deflation. The situation of the poor requires its own analysis.

[closeupready]

47. Those are very good points, JD. I reject the categorical claim by some here

that deflation is always bad everywhere for everyone, mostly because I suspect they are all speaking from their wallets/investment portfolios. I think you have it right, though, and it's an important fact to keep in mind.

[bbgrunt]

26. deflation only appears to be good for

working people in the very short term. The depression in the 1930's is what you get with deflation. Farmers dump their crops because they can no longer cover their costs of producing. factories shut down for the same reason. Paid working jobs disappear. basically, production shuts down as unprofitable. You don't want to live in that world.

[Recursion]

37. How does deflation undermine wages?

You're assuming they aren't nominally sticky, when they seem to be very strongly nominally sticky

[Lucky Luciano]

46. Hours get cut...and wages can go down nominally too.

Right now the Fed is more interested in seeing Average Hourly Earnings going up than watching unemployment rates fall for the purposes of deciding when to raise rates. Until wages start to increase consistently, their belief us that inflation targets cannot be met.

[Dreamer Tatum]

48. What isn't sticky is corporate bankruptcy.

In deflation, investment stops and waits it out. Capital dries up, and businesses wither. This is the mechanism that causes unemployment. It merely takes a little while and doesn't move at the same speed for all sectors.

[JDPriestly]

39. My husband suggests that the deflation may be due to the rich taking their money out of

circulation -- hoarding it and hiding it in other countries in order to avoid taxes. Could someone comment on that idea please?

[Dreamer Tatum]

49. The rich don't hold enough currency to make that plausible.

Most of the wealth of the rich is in value, not in currency.

[quadrature]

40. deflation... much easier to live with , than late-70s inflation ...nt

[TomCADem]

50. At One Time, Moderate Inflation Was Considered Progressive

In fact, there was a whole party formed around the idea of issuing non-gold backed paper money.

http://en.wikipedia.org/wiki/Greenback_Party

The party's name referred to the non-gold backed paper money, commonly known as "greenbacks", issued by the North during the American Civil War and shortly afterward. The party opposed the deflationary lowering of prices paid to producers entailed by a return to a bullion-based monetary system, the policy favored by the dominant Republican Party. Continued use of unbacked currency, it was believed, would better foster business and assist farmers by raising prices and making debts easier to pay.