A world where prices drop every year.
This sounds like good news to a gold bug. They love the idea and are appalled that a dollar of yesteryear buys what 13 cents did at the time. (Or was it .03. Doesn’t matter. They’d be appalled by either one.)
So I imagined the opposite scenario and was a bit surprised to find out that the result wasn’t disastrous or great. It was THE SAME!
So I’ll just run through a few of the insane consequences that result from a deflationary spiral. A lot of them make no sense, but put together, it makes a workable world, given a willingness to turn the world upside down. Bear in mind, virtually NOBODY is better off in this new wrold. If you were on top, you stay there. If you were penniless, you still will be,. NOTHING changes.
“So, honey, how’d your employee review go?”
“They say I’m doing great! They cut my salary 3%”
“That’s WONDERFUL!!! Let’s break out some of the good wine!”
“Yeah, deflation is at 6%, we’re going to be rich! How’d your interview go?”
“Excellent. I’m a perfect fit. They offered me the salary I made ten years ago.”
“Oh my Lord! Are they insane?”
“I know, right? Between your tiny salary cut and my raise, we’re golden!”
“Better than golden, honey, our value is going UP, thanks to you.”
“So, Mr. Dawbs,you want the car?”
“I do, she’s great.”
“Good. Now, I understand you want to pay with cash, but we can offer to pay you 2% on that cash if you’ll make it a loan instead over the next 5 years.”
“Please, do I look like a sap? How about if I take a loan out from you at 2% and buy from your competitor?”
“Okay, okay. Sorry I brought it up.”
“And what’s the rate on these $1000 CD’s?”
“The one year CD, we’ll pay you $995 dollars next year, but if you keep it with us five years, we’ll give you 990.”
“Sweet! I’ll take the five year CD! ”
“And in the end, JB, I’m confident we’ll break even on the merger.”
“Don’t toy with me, Stevens.”
“I wouldn’t kid you sir. That was my pessimistic estimate. If we get lucky, we might make 3%”
“If we beat 1, I’m putting you in for a pay freeze!”
“Now YOU’RE kidding ME sir.”
“I couldn’t be more serious. Ever since you came on board, we’ve lost less money every year. We’re almost profitable, for heaven’s sake! We’ve got to take less from you. You’re worth almost every penny we give you.”
Next up, we handle what’s happening on the lower end of the economic scale.