As you may know, Yahoo blithely abandoned 360 users a year ago, leaving the site up but ending all work on or improvement of it, bugs and all.

Apparently, they prefer the Apple method of abandoning the existing userbase when making improvements, over the Microsoft path of dogged backward compatibility. Perhaps they'll enjoy Apple's microscopic market share, too.

Anyhow, I'm now hosted at WordPress

The URL is http://ButNowYouKnow.wordpress.com/

Here's the latest article:

http://butnowyouknow.wordpress.com/2008/12/16/why-deflation-is-badfor-you-pri...

Why Deflation is Bad…for You, Private Property, and Capitalism

Politicians and journalists are worried, right now, about a downward spiral of deflation, of the type that normally comes in an economic depression.

They are pointing to two signs we are having bad deflation...first, the falling price of commodities like oil, and the disappearance of money in this economic failure causing demand to plunge. One of those is actually good, the other is very bad.

When prices go down naturally, because of an increase in efficiency or improvement in technology, it is good for everyone.

For example:

• Improved efficiency makes the manufacture of computers cheaper, while more advanced computers make the old versions cost less.


• Food used to take up most of humanity's effort, therefore most of a family's cost of living, but has declined to third or fourth place as technology and efficiency allowed us to grow more with less.

The decline in oil prices, returning to only double their normal level, will cause a good kind of global price decline, because most prices are effected by the cost of the energy required to create and deliver products and services.

But, again, those specific cost reductions are not deflation.

What Are Real Deflation and Inflation?

[caption id="attachment_185" align="alignright" width="246" caption="When money deflates, people choose to just hold onto it, starving the marketplace and causing a spiral of ever more deflation"][/caption]

In real economic terms, inflation and deflation happen when the ratio of money to economic wealth changes. If the amount of money becomes greater, in comparison to the economy, then you get inflation. Because the most common result of this is for prices to increase, we confuse the terms and call general price increases "inflation", but actually it's the change in ratio that is inflation.

The eleven trillion-plus dollars of capital that have purportedly vanished in the past few months represent a huge decline in money supply, causing actual deflation. This failure was caused by the inability of central authority to manage money any better in the US than it could provide shoes and food in the Soviet Union.

Prices Can Increase Without Inflation, Too

Prices can actually increase for other reasons, and that's not really inflation. For example, when oil increased 600% in price, it drove up the cost of production, without regard for the number of dollars in the economy. This general price increase was NOT inflation.

And when prices decrease for other reasons, it's not deflation.

Inflation is Harmful

We all know that when the ratio of money to wealth increases, causing inflation, it is bad for the economy, and especially for the poor and middle classes. This is because it usually drives up prices, and the poorer you are, the more of your wealth and well-being is in cash.

Poorer people depend on cash they have in a bank, or other savings. They are paid by employers who give them only a set rate, plus raises for special reasons like increased skill.

Wealthier people tend to have more of their wealth in assets like, stocks and real estate, that will simply increase in price, sheltering them from some of the effect if inflation. They get cost of living increases in salary every year, on top of any other raises.

Deflation is Harmful, too

But the opposite kind of damage occurs if you have deflation, and is compounded by a new problem.

First, deflation artificially drives down prices. To a person with no real assets or investments, this sounds good, because "stuff costs less".

But it comes at a horrible price.

[caption id="attachment_187" align="alignleft" width="240" caption="Deflation punishes investments that can raise people from poverty, both personal investments, and business growth"][/caption]

For example, the decline in prices includes wages. Deflation is universal, with a shortage of money everywhere, so that your income will decline, along with the price you pay for things. What good is cheaper stuff, if you also have less money?

So people with fewer assets and no investments will more or less end up breaking even. But they still lose out in the end, because they become blocked from gaining assets, trapping them in relative poverty.

For example:

How Deflation Traps the Poor and Middle Class

Imagine you're buying a house. Not on a sub-prime loan, but one where your income is perfectly fit for the home you're getting.

It's probably a thirty year loan. So you're going to be stuck paying on the original price of your house, for thirty years, at the original size of house payment.

Now remember that your income (in dollars) is getting smaller every year. That's deflation.

And the price of your house, too. Each year, its is worth fewer dollars, yet your original debt is the same. And so are your payments.

Within just a few years, you are making far less money, but are stuck with the same size house payment you always had.

While you still have to pay the same percentage of of your paycheck income for food, electricity, and so on, your house payment takes up a higher percentage of that money every year.

Soon, your income has shrunken to the point where you cannot make your house payment at all. Not even if you paid your whole check to the bank every week.

And worse, you can't simply sell his house to get out of it. The price of your house has also declined every year. Selling it now that the payment is too high won't even pay off your remaining house debt.

Of course people would quickly learn this, and that they simply cannot buy houses, unless they are so incredibly wealthy that they can save up enough to pay cash.

But even those wealthy people who can pay cash for a house now face the situation where buying a house is a horrible investment, because the house's value will decline, in dollars.

It would actually be better to leave the money in a vault, and rent monthly, even for a billionaire, because the money's value increases, while the house's price declines. One thousand dollars will be worth more next year, if you simply stick it in your mattress, than one thousand dollars worth of house will be worth in that same year.

In fact, owning land becomes a losing proposition. With even the wealthy better-off renting, who's going to actually be the landlord?

Deflation Attacks Economic Freedom

In fact, ALL property ownership becomes punished!

With deflation, anything you buy does not just depreciate with use and age, but declines in value every year with prices, compared to if you'd simply kept the money.

Today, you could buy that console game, or car, or collectible, and then sell it on eBay a few years from now and recoup part of the cost. But with deflation, the price you recoup is even farther from if you'd kept the cash in the first place.

Deflation Destroys Capitalism

[caption id="attachment_190" align="alignright" width="210" caption="Deflation punishes investment and property ownership, attacking capitalism at its roots"][/caption]

In fact (and this is where the entire economy implodes from deflation), simply holding on to your money is rewarded versus ANY investment, in a deflationary economy. If you put your money in a big ol' vault, removing it from the economy entirely, it grows in value every year. But if, instead, you buy stocks, or invest in commodities, then your money is gone, replaced with an asset that becomes worth less every year, in dollar terms.

The growth of every business, in fact, would be undone by the rate of deflation. Now from the company's standpoint, that is fine, because its expenses decline every year by the same amount.

But from an investor's standpoint, a company growing at 2% per year during 3% deflation would mean you lose 1% over just stuffing your money in a safe. And yet you also risk, when investing money.

Why bother investing even in a company you think might grow at 5%, when you could have a 100% safe 3% investment in a vault under your mattress? So, really, the company facing deflation is NOT fine, because it discovers that it's far harder to get investors. In fact, the entrepreneur who would have started that company is 3% punished each year for the effort, making him that much less likely to even bother.

With investors discouraged because of deflation, it becomes harder to create wealth. Capitalism, in fact, becomes almost impossible:

• An entrepreneur can't get investors for his new project.


• There's less reason to buy stocks, so companies can't raise capital.


• You can't get a loan to start a business, because your company's income would decline every year, yet the loan payment would stay as large as ever.

With deflation, the very engines of capitalism all die out.

Speculation Defines Capitalism

It is the uncertain investment on the wild new idea that makes capitalism superior to central planning. Anyone can decide to invest in a "sure thing": if that were good enough, socialism would work, because a government bureaucrat could declare money for the obvious solution. It's diverse people choosing to risk money on many different wild ideas that lets the best solutions rise to the top.

But that very kind of capital investment, in a deflationary economy, is punished, because you get such a good deal by not investing in anything at all, but holding your money in a vault.

All of this, by the way, is aside from the additional destruction caused by the lack of downward price elasticity on many commodities and time-based investments. That's much more arcane, but a key source of economic depression, that I'll get into some other time.

For now, it's enough to realize that prices being FORCED downward by deflation includes your pay, and the value of any investments you make, so that private property ownership, borrowing, and investing, in fact all capitalism, is crippled under deflation.

All the politicos have jumped on the relatively weak dollar as proof of their favorite cause, even though there is no change that happened to that pet peeve at the time the dollar started to slide.

For example, the "trade deficit" (a meaningless bogeyman in the first place) has not changed in its growth, from the time when the dollar was strong, yet the trade deficit people blame that.

Likewise the National Debt people blame the debt, despite how the dollar was strong in each previous national debt expansion.

And the goofy socialists all claim it's because America is capitalist, while the Enlightened European Union is working hard to eliminate as many economic freedoms as it can. But this, too, is not new...although the very existence of the Euro is...the Euro whose "strength" is crippling European exports, producing calls from EU member industries for the Euro to be fixed (by weakening it).

There is one thing, however, that changed in sync with the "decline" of the US Dollar:

The flow of dollars out of the US, thanks to foreign policy.

For example, the US previously spent perhaps ten or twenty billion dollars per year on foreign aid. Now this is a very harmful, irresponsible thing to spend taxpayer dollars on, true...but it only had a limited effect on the Dollar.

But now, the US spends HUNDREDS of billions of dollars per year on "foreign aid", when you include the conquest and reconstruction of Afghanistan and Iraq, plus the massive new spending of money on evil, dictatorial "allies" like Pakistan's tyrant, General Musharraf.

Likewise, the insane, imperial post-9-11 foreign policy has increased the price of oil, the experts say, to FOUR TIMES what it would naturally be. Since the US is an oil importer (mainly because it's illegal to extract most domestic oil, despite the US having the world's third largest natural oil reserve), this means the US is exporting four times as many US dollars to buy that oil.

The value of any currency, in ANY trade realm, is immediately based on how much of that currency there is. If there are a lot of it, then it is worth less than it otherwise would be. If there is less of it, then it's worth more.

This is true domestically. If the US prints way too many dollars, then we get inflation. Inflation is a "weak dollar" inside the country.

Likewise, if there are way too many dollars in foreign markets, then the dollar will be worth less, compared to other currencies that still have their old amount in the foreign exchange markets.

When the Federal government goes from squandering tens of billions of dollars on foreign policy, far more than one TRILLION dollars on foreign policy, it's a miracle that the dollar remains worth ANYTHING at all.

So, essentially, it is the aggressive, hypocritical foreign policy of the last six years that has caused the dollar to weaken so.

The Klan is (1) a racial separatist group, who want to (2) form a nation of their own race/color, and creed. They like to (3) hold marches to rally "their" race to be proudly separate. They have a history of (4) violence against those who disagree with them, and of having (5) "softened their approach" in recent decades, to (6) sell their racism more easily.

Luckily for the Klan, there's holiday that was invented by the leader of (1) a racial separatist group, who wanted to (2) form a nation of their own race/color. They liked to (3) hold marches to rally "their" race to be proudly separate. They have a history of (4) violence against those who disagree with them, and of having (5) "softened their approach" in recent decades, to (6) sell their racism more easily.

It's called Kwanzaa.

It was invented a few decades ago by Ron Karenga, a racist/separatist Marxist, who said it was specifically to isolate blacks from everyone else. He called Christmas/Christianity a "white religion" that blacks should shun, because "Jesus was psychotic". His plan was that this new, literally atheistic holiday would drive a wedge between black and white, as well as blacks and Christians, blacks and economic freedom...pretty much any wedge of hate you could drive, Kwanzaa was the hammer.

Sounds like the Klan's wet dream. For years, they've talked about how they don't actually hate blacks, per se, but just want to form their own, ethnically pure nation, and of course blacks are welcome to go off and do the same.

Which is what Kwanzaa was intended to help accomplish.

To this day, Kwanzaa is about black people, is a "black" holiday, a racially separate holiday. It's exactly the same in quality as if the Klan invented a WHITE holiday...which, ironically, would probably start with and contain many of the same letters; maybe Kwizmaas...which was for whites to celebrate their culture and race.

Bigotry is exactly as vulgar and evil, no matter who does it.

I don't celebrate racist holidays.

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Since I routinely criticize the Bush administration for its disastrous foreign policies, I should also note when they seem to do something right.

All too often in US politics, administrations ignore evils committed by "allies", while loudly attacking significantly lesser evils by "enemies". What's more, they use the sociopathic benchmark of "what is good for US interests" being the sole criterion on which category a country is in.

In this case, the US has refused, even when every other country in the world objected, to condemn even the most brutal, vile actions taken by governments of Israel...even when the PEOPLE of Israel were mostly horrified by their own government's behavior.

One ongoing evil is that a small, racist minority in Israel has continued to try to ethnically cleanse the area around Jeruselem, that is legitimately part of Palestine, but which they wish to claim as part of an empire.

One of the ways they're doing so is by taking over whole neighborhoods, replacing the people there with "ethnically appropriate settlers" from Israel.

A new wave of this ethnic cleansing is soon to start...but Condoleeza Rice has actually spoken out against these settlements.

Ethnic cleansing by foreign occupiers is among the greatest of evils. When it's not by outright slaughter, this does not make it OK, any more than rape is acceptable simply because it's not murder.

Kudos to the Bush administration for actually getting something right, for at least a moment.

Discuss this post HERE