Reply #27: This is what deflation looks like

[Warpy]

Real property deflated during the 1920s. The only thing that was making money was the stock market, and people could get into it paying ten cents on the dollar and borrowing the rest. With a deal like that on a sure thing, they all jumped in because their wages were going nowhere and if they owned land or a home, it was losing them money every day just sitting there.

Fast forward to the Naughties. The stock market, while making paper gains, was flat when indexed to inflation. Housing was the sure thing, the only thing making money, and people could get into it for ten cents on the dollar, borrowing the rest. With a deal like that on a sure thing, they all jumped in because their wages were going nowhere and if they owned stocks in a 401K, the stuff was just sitting there losing them money every day.

We came very close to having the money disappear overnight the way it did in 1929. TARP, even the way the bankers abused it, made the difference there. The wimpy stimulus package also temporarily slowed the inexorable slide to deflation. However, it can't be stalled forever and it's just getting started in earnest.

Big money knows this and this is why they're not lending. By not lending, they're also ensuring a deflationary period will occur.