We are bearish on U.S. government paper – in all its forms. And here’s why. The latest estimate from Goldman Sachs puts US government borrowing for this fiscal year at $2.5 trillion. Meanwhile, foreigners are showing less and less interest in U.S. …

The Free market mechanism has already solved these problems. In many areas asset prices are approaching normalcy. In the coming years the stupid banks will die, and the smart banks will thrive (unless of course the government’s remedy is excessive regulation). The over indebted consumers and corporations will learn the lesson on relying to heavily on debt, while the solvent will continue and perhaps expand by acquiring assets at firesale prices. Problem fixed. The smart are rewarded, the stupid are rewarded as well through the lesson they learnt

When consumer prices fall, consumers become obsessively frugal.

I absolutely do not understand why this particular bit of idiocy persists.”

It makes sense to me, why would I buy a car or a house today if I know they are just getting cheaper. If I need a new computer, but my current one is decent and I know the prices are dropping (beyond the typical Moore’s law smaller cheaper dynamic), I’ll most likely continue to use my passable computer for a while longer.

how’d you end up with a chunk of ranchland with no water running thru it? its not like argentina is natural resource poor. leaves your readers with a twinge of doubt.

I absolutely do not understand why this particular bit of idiocy persists.

Observe the computer hardware industry. Prices have been falling in that business since its inception. Current hard drives, for example, are now less than a dime per gigabyte, and continue to trend downwards.

By the logic of the above idea, nobody has done any computer work for multiple decades because they keep “waiting a little longer”…

Ten seconds of thought will reveal why this is not so. Under conditions of dropping prices, consumers weigh future savings against the lost time of possession of the good, with all that entails. If I wait until next week to get a hard drive cheaper, I am unable to story anything during that week.

Take a wider view, and one can see why dropping prices can only encourage this frugality in those few markets where there is little value in having the particular good right now — gold, for example. Most goods have a built-in advantage to being in hand versus bought later; necessities such as food and shelter come to mind, in particular perishable ones. For these, the rate of price drop would have to be substantial to outweigh the immediacy of the need.

Taking a wider view, those markets where price drops encourage waiting to buy, the market contraction so caused would be self-limiting, in that the floor costs of providing that good (storage, inventory, overhead) would eventually rise to meet the dropping price; if sales don’t pick up, supply contracts.

There is no argument I’ve seen against an environment of dropping prices (which I am careful not to confuse with “deflation”) which does not suffer from a failure to check actual human behaviour in one form or another. This is one of them.