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Signs are mounting that the efforts of the government and central bank to fight deflation may be contributing to it by destroying consumer and investor confidence. All the bailout talk that escalated in earnest in September with the passage of the $700 billion Wall St. welfare package may have contributed to the fear gripping markets and consumers. Today (Nov.19) stocks plunged 5 to 6.5 percent. GM and Ford, testifying in Congress on their desire for handouts, dropped 9.7 and 25 percent, respectively. Insurers Lincoln National and Hartford Financial, both seeking handouts, plunged 34.5 percent and 28.6 percent, respectively. The consumer price index was down 1 percent in October. The Federal Reserve said that the economy will contract in the second half of this year and the first half of next year. That would make it a one-year recession. Given the Fed's record for Rebecca of Sunnybrook Farms forecasts, you can almost double the prediction to a two-year recession. Prices of stocks, real estate, and commodities are all declining at once -- an unusual pattern except in a generalized price decline such as in the 1930s. Consumer confidence indexes plummeted in September as the government talked of bailouts. The stock market's steep declines escalated around that time. There is an old saying that once a company says it is thinking about bankruptcy, it is in bankruptcy. Maybe the Treasury's Hank Paulson and the Fed's Ben Bernanke should check that old aphorism.

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Comments

JF Nov. 19, 2008 @ 9:56 p.m.

I believe I heard today that home sales in SD are up 50% over last October. Sounds like it may have reached equilibrium here. We'll see.

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JohnnyVegas Nov. 20, 2008 @ 11:18 a.m.

I believe I heard today that home sales in SD are up 50% over last October. Sounds like it may have reached equilibrium here. We'll see.

Not even close to being "up" unless you mean sales volume and not price.

For you JF;

NorCal median home price plummets 41 percent

By ALEX VEIGA, The Associated Press 9:52 a.m. November 20, 2008

LOS ANGELES — A real estate tracking firm says the median home price plunged 41 percent last month in a nine-county region around San Francisco Bay, as homebuyers snapped up homes that had been foreclosed and otherwise discounted. Figures released Thursday by MDA DataQuick show the median sale price in the region declined to $375,000 October, compared to $631,000 in the year-ago period.

http://www3.signonsandiego.com/stories/2008/nov/20/ca-california-homes-112008/?zIndex=14538

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valueinvestingisdead Nov. 20, 2008 @ 6:57 p.m.

Market is in complete life ruining mode. The GREAT DEPRESSION 2 is on our doorstep. Better be protected as I see a crime wave as people become desperate for food.

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JohnnyVegas Nov. 21, 2008 @ 12:11 p.m.

No need for crime, we just need to "redistribute" some of that ill gotten booty the public unions are currently laying claim to.

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Don Bauder Nov. 23, 2008 @ 10:21 a.m.

Response to post # 1: Watch the price, not sales volume. Best, Don Bauder

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Don Bauder Nov. 23, 2008 @ 10:24 a.m.

Response to post #2: Housing deflation will continue. San Diego prices are down more than 30 percent and may have another 20 percent to go. Best, Don Bauder

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Don Bauder Nov. 23, 2008 @ 10:27 a.m.

Response to post #3: Unfortunately, a certain deep recession could turn into a depression. Deflation looms. Best, Don Bauder

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Don Bauder Nov. 23, 2008 @ 10:30 a.m.

Response to post #4: Yes, government pay and fringes are grossly excessive. But not as excessive as topside corporate salaries and Wall Street pay. Best, Don Bauder

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mythusmage Dec. 8, 2008 @ 5:28 p.m.

Prices will fall, and will fall deeply. People will be hurt by it. Others will do well. Especially those who accept the just starting deflation, prepare for it, and see it as an opportunity.

Here's one thing to keep in mind, the lower prices get the more value money will have. People will have more money to spend; more money for necessities, more money for luxuries. Each dollar will purchase more, meaning the lower prices for oil we're seeing now will be offset, and then some, by the greater purchasing power of the dollar.

In short, as deflation continues new dollars will gain the purchasing power of two, three, perhaps even four old dollars. Barrels of oil now going for $45.00 may fairly soon be going for the equivalent of $90.00 to $135.00 in today's money. All without rising in sticker price.

But, if you're going to get through this you can't automatically assume that deflation is always a bad thing. Deflation can have bad effects, deflation can have good effects, but in the long run the effects deflation depends on how we handle the affair.

Remember that hesitation has killed about as many motorcycle stunt riders as rashness.

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