Deflate

The UK's retail pricing index (RPI) indicates the country is entering a deflationary period. Combined with recession, this an omen. To explain, there are two types of deflation: good and bad (so simple). Good deflation driven by demand, which increases production to meet the demand .. increased production introduces economies of scale and per widget prices fall .. fuelling more demand netting an expansionary economy, jobs and a nice, happy, little society. This is what occurred during Britain's industrial revolution or the US in the 1920s. Bad deflation is supply driven - there is too much of it. Unsold inventory forces discounting, lowering income and reducing profits should cost cutting not match -which eventually it does.. people laid-off reducing purchasing (demand) further and down we go. Worse, in bad-deflation we cannot trust earnings forecasts by public and private companies we invest in, which means they may be.. worthless! If one considers that the standard MBA discounted-cash-flow model applies 80% of an enterprise's economic value in the terminal value (ie, multiple applied after, say, the fifth-year forecast) and earnings declining due to deflation.. well, you see the idea. This is why so critical to stim-u-late today and not get distracted by the vast amount of Federal debt. Recall that the Great Depression ended thanks to WWII (not FDR, but he set us on the right path) - the war produced the greatest government works program known to man and saw our leverage to GDP ratio surpass 120%. Today, despite trillions, we are not above 20% - a freaky number for sure but the alternative, should today's progam not work, is a generation of economic stagnation. See Japan for the details.

A car picks me up in 20 minutes to Boston via Heathrow.
Wonderful photo from Richard Franke. I had a couple XXX ideas, you know - of limpness- but not appropriate for Moe, Stan and whomever else reading.