Falling prices can’t be all bad

Here’s another example of how fast things are changing.

“Inflation Beyond the Headlines” was the title of Atlanta Fed chief Dennis P. Lockhart’s speech to the Georgia State University’s Economic Outlook Conference on Aug. 27.

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As most were sensing an economic slowdown, inflation worries translated into stagflation: high inflation in a recession.

Now that we are here, inflation is on no one’s lips. Thanks in large part to the nosedive gasoline prices took off its 147-foot oil rig.

Today, the government will report October’s consumer price index. Expect to hear grumblings about deflation, as most economists expect prices at the retail level to have fallen around half of a percentage point.

But Tuesday’s producer price index fell nearly twice what economists had predicted, so don’t be surprised if the CPI sets off alarms.

Already ahead of the grumbling curve is the Nov. 13 edition of The Economist magazine with its “Depressing times: debt and deflation” article. A few weeks ago, David Rosenberg, the Merrill Lynch economic guru credited with forecasting our current mess, issued a deflationary warning.

For folks like Robert Prechter, author of the best-selling “Conquer the Crash” and market analyst working up in Gainesville, deflation is bad for debtors but good for those who hold cash.

“Consumers who have been living off mortgage and credit card debt will have to slow their rate of purchasing dramatically,” Prechter says.

As that covers the vast majority, such dramatic slowdowns result in the sales of just about everything declining, resulting in unemployment rising, among other recessionary traits.

But for Llewellyn Rockwell Jr., president of the Mises Institute in Auburn, Ala., deflation is all good. How can lower prices be bad for consumers?

“What’s good for consumers is good for everyone,” Rockwell claims.

How can it be good that your house is worth less?

Rockwell says it was a false economy that led you to believe your house is an investment for retirement or could be tapped like an ATM.

Your house may be worth less, but as long as you didn’t take out a second mortgage or use a home equity line of credit to buy gifts and take safaris, you will benefit from falling food, car and gas prices.

“If we must have recessions, make them deflationary recessions.”

The bogeyman in all this is the specter of another Depression. That’s when deflation got its bad rep. Most in fact blame the Great Depression on a shrinking money supply, but Rockwell sees it differently.

He contends it was the aftereffects of the Roaring Twenties boom combined with massive government intervention that caused the Depression.

If that scenario sounds eerily familiar, it’s because it is.