Five Things Podcast, The Transcript: Hyperinflation vs. Deflation-Minyanville

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Five Things Podcast, The Transcript: Hyperinflation vs. Deflation

Kevin Depew Oct 24, 2008 4:10 pm

Five Things Podcast, The Transcript: Hyperinflation vs. Deflation


		It's just like the Five Things You Need to Know Podcast, only quieter.

Kevin Depew: Well, that’s the fifth thing today. The blurring of the distinction between savings and investment goes back a long way. Probably you can trace it back to the death of pension plans and defined benefit plans.

Cory Bortnicker: When was that?

Kevin Depew: I can’t remember the exact date, but I think around in the early ‘80s perhaps.

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Cory Bortnicker: Okay. So recently as well. Okay.

Kevin Depew: But the transference of the ability to control your own retirement destiny is the way it was sold and through investing in 401(k) plans. Well, what that did was that it sent the message, whether intentional or not, that the place to save your money is in the stock market.

Well, the stock market is not a savings vehicle by any stretch of the imagination. When you invest in stocks, you’re taking ownership in the company and, hopefully, as an owner in that company you’re going to benefit from the dividend stream and the future earnings that that company accumulates.

Savings is different. Savings is money that you can’t afford to lose, by definition, and that’s why you save it. And so somehow it became, you know, nobody really has savings anymore. They have some investments that have lost money over the past year or things of that nature, but they don’t have really savings.

When I was a little kid, my grandparents would have never dreamed of investing in the stock market because they were trying to save. It didn’t even occur to them to invest in the stock market. They never felt like at any point in their lifetime that they were wealthy enough that they should be bothering with investing in stock markets.

And I think that as unimaginable as that attitude is, things have gotten so skewed the other way that people will be surprised that within ten years we will be back in a mindset where the stock market is a different animal. It’s not a savings vehicle; it’s an investment vehicle, which is different.

Cory Bortnicker: If more and more Americans are going to be saving going forward, is that going to play a role, in going back to our discussion about deflation? Is there a relationship between the amount of savings that people are having and deflation?

Kevin Depew: Well, absolutely. Because deflation, the definition of it, essentially, is a contraction in the supply of credit. So when you have simultaneously these deflationary forces -- you have overproduction, a glut of too many products, people who have too much debt and who are not only having too much debt, who are focused on paying down that debt and reducing it -- and, meanwhile, trying to accumulate savings, which are dollars, that is a structural deflationary mindset. It’s a perfect storm of deflationary points.

Cory Bortnicker: So am I right in saying that increased savings will aggravate deflation? Is that accurate?


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Comments (13)

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Dan Keys

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10-25-2008, 10:38 am
With the distinction of savings and investment being blurred ( craziness like FDIC guarantees of MM funds), how do we know if the money we put in the bank isn't being invested- I.e. we are taking the same risk as buying investments like comerc Read More

Jeff Burke

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10-25-2008, 10:18 pm
Take the S&P highs from years when things were 'normal', before inflation and financial shenanigans, 1965 to 1983 and extrapolate them: S&P 576. Read More

Michael C

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10-26-2008, 5:58 am
As I understand it, you can reach a point where the helicopter approach doesn't work because you give people money and they don't spend it, they save it. If you think prices are going to be lower tomorrow you won't spend or invest t Read More

Gerry Turner

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10-26-2008, 11:53 pm
Great educational article! I just got a Credit Union loan for a car. They have strict rules of lending and seem very prudent. Keeping my money with them feels secure vs. under the mattress. I closed the Wells Fargo accounts as the per Read More

William Ramseyer

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10-27-2008, 11:12 am
Kevin shows again that he is one of the finest commentators on the web, with a tremendous knowledge of history, philosophy, economics, and the â��real worldâ�� of today. I have some questions for Kevin and any commentators, and while I h Read More


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