Turning on a Dime: The New Frugality

Baby Boomers Unprepared for Tomorrow

Boomers have known only inflationary or reflationary conditions for most, if not all of their conscious lives. Here's the pattern: Want, work, borrow, spend, enjoy, and worry about bills tomorrow because tomorrow never comes. 

But tomorrow is dawning. The bills are due, and boomers are now entering their golden years with a need to consume what they perceived would be a treasure chest of accumulated wealth - wealth that would allow them to sustain their inflationary lifestyles to life's end.

However, their assets have now vanished in a giant deflationary two-step of collapsing home prices and a failing stock market. Note that these are symptoms of deflation, not proof of it.

However, 15 out of 15 things one might expect to see happen during deflation are happening now, as  Humpty Dumpty on Inflation details.

Living standards and associated expectations among the lower working class and poor in the western nations have been raised to levels that won't likely be maintained during a secular deflationary crisis, let alone permit the lifestyles of the upper working class, professional middle class, and wealthy to remain intact.

Is Deflation a Government Choice?

Most still believe in the Fed's ability to inflate another bubble. They're mistaken. Instead, I offer a Crash Course for Ben Bernanke.

Alan Greenspan had the wind of consumers' willingness and ability to go deeper in debt at his back. Bernanke has the wind of boomers fearing retirement -- in the midst of falling home prices and impaired bank-balance sheets -- blowing stiffly in his face. There's no cure for what ails us other than time and price. And with the aforementioned attitude changes, the biggest, most reckless, global credit-expansion experiment the world has ever seen is coming to an end. Central banks are powerless to do anything about it.

I know that, in theory, a determined government can always produce hyperinflation if it wants. But if it was as simple in practice, yields wouldn't be at 0%. Right now, the important thing to note is that even with the massive "stimulus," thus far, it's been dwarfed by the implosion of credit and the trillions of dollars worth of writedowns and bankruptcies that are coming. Japan tried for years to combat deflation and failed.