Daily Pfennig 7-29-2009

http://www.dailypfennig.com/

"...Doug Casey regarding deflation...

"Deflation is actually a good thing, because in a deflation prices drop and money becomes more valuable, so deflation encourages people to save money. Deflation rewards the prudent saver and punishes the profligate borrower. The way a society, like an individual, becomes wealthy is by producing more than it consumes. In other words, by saving, not borrowing. And during a deflation, when money becomes more valuable, everybody wants money. They want to save. Whereas during an inflation, you want to get rid of the money. You want to consume. You want to spend. But you don’t become wealthy by spending and consuming; you become wealthy by producing and saving.

Inflation encourages people to borrow, because they expect to pay the debt off with cheaper dollars. It encourages people to mortgage their future.

The basic economic fallacy in this is that a high level of consumption is good. Well, consumption is neither good or bad. The problem is the emphasis on consumption financed by debt -- which leads to the national bankruptcy we’re facing. It’s much healthier to have an emphasis on production, financed by savings."

"...Numbers to be released later today will continue to call into question the recovery of the US economy. Orders for Durable Goods in the US probably fell in June for the first time in three months. The major automobile factories shuts down for part of the month, causing a drop in the overall number. Ex autos, the number will likely be unchanged from the May figure. Mortgage applications were already reported this morning, and showed another dramatic drop. The 'refinancing boom' which the government created earlier this year has petered out, and unless additional stimulus money is thrown at home buyers, the housing recovery will be a long drawn out process. And finally, the Fed's Beige book will be released later today. This report details how the economy is performing in each of the Fed's districts, and is expected to confirm the US economy is starting to bottom out, but no rapid recovery is in sight..."