Depression and Deflation

This video talks about the deflation depression that is hitting our world according to Robert Prechter. The dollar has been rallying and the CPI is at a 44 year low. Deflation may sound beneficial to some people however it has a very bad influence on the economy. Deflation puts rich and big countries at a risk. Deflation increases the real burden of consumer’s and government’s debts.

This video is important because it gives people tips on how to react to deflation. When deflation occurs, all your assets go down in value so as result, you lose money. Prechter suggests that the safest way to solve this problem is to invest in treasury bills or any funds that invest only in treasury bills. Treasury bills have no interest payments but they are sold at a marked down price. He also suggests that during deflation, keeping actual cash is also not a bad idea however there are some concerns with keeping money in bank because of what happened to many banks in 2009.

As deflation occurs, next to come, is credit implosion that will destroy the value of stocks, commodities and especially real estate. The biggest area of overvaluation because of credit extension is the real estate area. When this next phase of "deflationary depression" happens the only investment advice is: "Make sure as an individual you're in the safest possible investments so you can ride this out".

Canadian debt: The $1.4 trillion hole we’re in - thestar.com

Canadian debt: The $1.4 trillion hole we’re in - thestar.com



Canadians’ total household debt (outstanding balances of consumer credit and residential mortgage credit) is $1.41 trillion, representing as of December 2009. Households have increasingly substituted consumption from income with consumption from credit. The share represented by revolving credit within total consumer credit grew to 77.7 per cent by the end of 2009, up from 21.1 per cent in 1989. Consumer credit had emerged as the only way many Canadians could get the goods and services they want. Because credit is so easily available. Today most of our major purchases are made on credit. Canada ranks first among a list of 20 countries of the Organization for Economic Co-Operation and Development — including the United States — when consumer debt-to-financial-assets ratios are compared.

This article is important because it shows how government monetary policies influence the economy. Interest rates have fallen low after the depression last year. Canada used monetary policy to increase consumer spending so that the economy grows. People were still afraid to borrow in the beginning of this year but as employment rates went up people had more confidence in borrowing. When real output falls short of its potential level, a recessionary gap is created. To stimulate output and increase employment, the Bank of Canada can use expansionary monetary policy. The interest rates went as low as 0.5% this year as a result consumers started purchasing more. Everyone started buying houses since mortgage rates were so low. Real output increased causing a positive effect on the economy. Therefore, now Canadian consumers are afraid of the increases in interest rates. Interest rates have now risen but this will create bit of a slow down in Canada’s economy since less people will start spending. However this also means that Canada's household debt will start to drop.