Written by: Michael E. Harter, CPA/PFS, CFP®
More often than not you hear talk about inflation in our business news. However, deflation is a real possibility in today’s economy. Deflation is a decrease in the general price level of goods and services.
The federal reserve policy of late is to produce inflation by printing more and more money for circulation. However, they are running up against demographics. History has shown that deflation occurred following debt bubbles in 1873-1874 and 1929-1932. Demographics studies have shown that household spending peaks at age 46. Who is in that category? The biggest generation in history – the Baby Boomers.
Consumer spending makes up 2/3 of our gross domestic product. So if a large percentage of our population is past their spending cycle, consumption will not return to its peaks and thus have an impact on our economic growth. The private sector is deleveraging as fast as they can.
The results can be devastating. Japan’s real estate market has been stuck for over 20 years. This could occur in the United States.
This cycle does come back around when lots of young people enter the job market. That does not appear to be the current times we are living in.