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Wednesday, July 09, 2008 10:22 AM


Confessions of a Former Inflationist


I recently received an Email from "RS", a long time member of the hyperinflation is coming crowd now but now sees things in a different light. Let's tune in and see what "RS" has to say.

Mish, I was a true believer in the "hyperinflation is coming" theory for quite some time. However, I have since changed my mind. Here’s why: I own a computer business and I used to pay techs $15-20/hr. I now have people willing to work for $8-$10/hr. While the nice guy inside is saying “pay people well” the businessman is saying “market conditions demand paying people what the market will support.”

Recently I have had to offer price discounts to obtain new business. Some contracts I picked up were for around 1/3 of my standard fees. I have cut costs to the point where they can be cut no further if I am to maintain my debt obligations. I am now at the point where my options are to work more hours for less money or “exploit” the labor market. Considering that I am already working 80-90 hour, there was no choice.

I just interviewed a single man nearing retirement age with a young daughter a couple years older than mine. He is not only willing, but trying to hide the fact that he’s DESPERATE to work for $8-10/hr. I might be able to afford to pay him $12/hr today, but with what’s coming over the horizon, wisdom dictates paying him $8 and using the difference to lessen debt obligations as quickly as possible. That would lower my costs for when the available business gets even tighter, leaving me in a stronger position to bid and win, and helping make sure he’ll still have a job in 12+ months.

As it seems to me, high debt load, plus rising product prices, plus deflation’s hit is painfully powerful. I’m confident from reading your articles that it’s only going to get worse.

RS
Thanks for sharing "RS". I am sure your story will help many see the light. Those fixated on the price of milk, eggs, and pork chops are missing the boat. There is enormous pressure on wages. Look at GM. Union power is dead. New GM workers will make half what those they replaced did.

I recently spoke of Massive Government and Private Sector Job Cuts. Every one of those people will be scrambling to find a job. Odds are most of them will gladly accept a pay cut to get work.

Fed Concerned Over Wage-Price Spiral

Ironically, Fed Governor Janet Yellen is concerned about a wage-price spiral.

The Fed "cannot and will not allow a wage-price spiral to develop," Yellen said today at a conference at the University of California-San Diego. The economy will "grow only modestly for the remainder of the year," while picking up in 2009.

I am wondering what planet Yellen is reporting from. Jobs Have Declined 6th Consecutive Months, with 438,000 job losses so far. It takes 150,000 new jobs to break even with the birth rate and immigration.

Unemployment is soaring, credit is collapsing, union bargaining power is nonexistent, and Strip Mall Vacancies Have Spiked to Levels Last Seen in 1995. Talk of economic expansion and concerns over wage-price spirals are complete silliness in this environment.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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