In contrast to inflation, deflation is that rare economic condition when prices of goods and services fall due a lack of demand. The last time large scale deflation occurred was when the U.S. economy practically came to a halt during the Great Depression in the 1930s. There can be a domino effect from falling prices – factories shut down because of declining profits, more and more people are laid off, household incomes shrink, and companies and individuals default on their loans. In a more recent example, falling housing prices have put pressure on many homeowners--forcing them into distressed sales which creates even further downward pressure on property prices and other asset values.

Notes from the CFA Institute Fixed Income Conference

The CFA Institute just held its 2012 fixed income conference in San Francisco.

Speakers shared a very broad range of perspectives on fixed income issues over the course of about a dozen sessions.

Session notes and observations (in no particular order) include:

Demographics and Deleveraging -- Rick Rieder, Blackrock

The Best Idea in Light of Demographic and Fiscal Challenges -- Scott Simon, PIMCO


Why is the Growth in Health Spending Considered a Problem?

Consumer discretionary spending is the major driver of the U.S. economy as household purchases make-up about 71 percent of U.S. gross domestic product (GDP).

Without growth in consumer spending, the economy would most likely go nowhere.

Since economic growth is generally considered a good thing, it stands to reason that we should be looking for things that contribute to consumer spending.

An interesting piece of research from an economist at Credit Suisse shows that health spending has been the...

Taiwan’s Asset Deflation Linked to Demographics

Much has been written about the link between Japan’s aging society and the asset deflation that the country has experienced over the past 22 years. There is a disconcerting correlation between the progression of Japan’s aging society and the relentless bout of deflation that began after the Nikkei peaked in 1989. A similar and equally distressing story exists in Taiwan. Taiwan is one of the most rapidly aging societies in the world, and similar to Japan, its population is shrinking...
Key Phrases: 

Why the CPI-E should be the Focus of Seniors Concerned about Inflation

A price index such as the consumer price index (CPI) is intended to provide a rough gauge of the general direction of prices in the economy.

An increasing consumer price index represents price inflation while a decreasing price index may provide an indication of deflation.

The CPI is an important index because the government uses it to make significant policy decisions.  For example, the recent decision to allow a...