From: John Conover <john@email.johncon.com>
Subject: Deflation
Date: 26 Jun 2003 07:24:19 -0000
There was a deflation analysis added to "Quantitative Analysis of High
Entropy Economic Systems, Section III," at:
http://www.johncon.com/john/correspondence/020218165107.2891.html#example-cpiai
There are no time series available for asset deflation that include
the Great Depression, (which I needed for the analysis,) but the US
CPIAI goes back that far; but about 60% of the CPIAI is big ticket
items, though-so it is representative.
It turns out that significant asset deflation is not that rare of an
event, (almost a virtual certainty over an investing lifetime.) During
the GD, asset deflation was about 60%, (meaning that houses, and big
ticket investments lost about 60% of their value, meaning lending
institutions had to foreclose, and then went under because they lost
40% of their net assets.) There is about a 90% chance of such a thing,
(or worse,) happening every century.
Note that the stock market crash of 1929 did not cause the GD-it was a
result of it; the asset crash started in 1920, bottomed in 1933, and
assets did not regain their value until 1979, (which started the
equity market boom/bubble in the US.) If you adjust the stock market
indices for inflation/deflation, they did not regain their value after
the 1929 crash until the mid 70's, (although the DJIA regained its
pre-crash value in late 1954, but that isn't adjusted for
inflation/deflation.)
I didn't include the page, (you will have to click on the above URL,)
since the page is very large, (about a meg and a half; there are 26
graphs on it now.) There is a lot of analytical stuff on the page: the
DJIA/1929 crash; the US GDP; industrial markets; equity prices;
currency exchange prices; gold prices; and US asset
deflation/inflation.
John
--
John Conover, john@email.johncon.com, http://www.johncon.com/