Inflation/Deflation: The Economy is an Elephant

by Charles Hugh Smith
Of Two Minds

This is the key dynamic of the economy going forward: defaults on debt, declining wealth as assets are relentlessly repriced lower and sharp declines in income due to layoffs and debt defaults.

The economy is like an elephant surrounded by blindfolded economists and pundits: what each blindfolded person reports about the elephant depends on what part they happen to touch.

This is why aggregate measures such as gross domestic product (GDP) and the consumer price index (CPI) will be misleading and therefore useless going forward: different parts of the economy might experience sharp deflation while other parts are experiencing rapid inflation. What each household and enterprise will experience depends on their exposure to these cross-currents.

Adding up sharply deflationary and equally severe inflationary trends to get a total inflation reading near zero will be utterly meaningless. Let’s review a few key sectors of the economy to see how different participants’ experiences of the economy will be.

Continue Reading at…