Inflation Ultimately Leads to Deflation

Over the past 13 years, consumers have started spending as if everyone was rich. More and more credit applications are being filled out, more and more people are approved every day. Then in turn, these people spend as if there is no tomorrow, knowing that they have time to pay it all back.

What is wrong with this picture? Credit has increased roughly 350% - income has increased roughly 188%. This means that due to the amount of debt most Americans have put themselves into, we are spending much more than we can afford to –and it is going to catch up with us.

The main problem is when people stop spending. Consumers make up 2/3 of our economy, and if they don’t spend what happens to our economy? Well for starters the prices stay where they are if people keep spending, as people decrease their spending prices start coming down. And down. And down. Eventually most everything will drop, and that leads us with deflation, a even bigger problem. ■