On Feb 3, 8:41*am, BreadWithS...[at]fractious.net wrote:
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We all know that the price of computers will come down or its
performance will go up at the same price, yet, nobody postpones their
purchase because they can be used now in productive activities whose
income offset their future price or performance change. The same
goes for cell-phones, TVs, oil, etc.

So, no inflation, thanks. Only those ridden with debt fear a
deflationary or steady environment, i.e., almost all Americans and
American companies.

"Sgt.Sausage" <nobody[at]nowhere.com> writes:
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Compared to other non-inflation-adjusted fixed-income
securities, it stinks.

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No - again - my comment about it stinking is not relative
to a mental hangup you appear to be diagnosing. It's
compared to other investment vehicles, many of which we
actively discuss as fulfilling similar roles in the
fixed-income portion of an asset allocatin plan.

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In general, a moderate but steady *inflation* is better
for everyone. In a deflationary environment, people pull
cash out and stick it into their mattresses and capital
flows and investment slows down or stops. Moreover,
wages are sticky - just because prices are going down
doesn't mean that folks are willing to take wage cuts.
A moderate but steady inflation manages both of those
things vastly better - you can give folks raises, and
people have substantial incentive to put capital to work
so that it doesn't lose value.


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<BreadWithSpam[at]fractious.net> wrote in message
news:yobhc3f8p85.fsf[at]panix3.panix.com...
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Why would that necessarily "stink".

If there truly is deflation, your purchasing power
is still the same, even with the reduction. The idea
being you're still in the same boat as if there was
inflation.

It's not about the absolute dollars (more in inflation,
less in deflation), but what those dollars can actually
buy.

The only reason it "stinks" is the mental hang-up we've
all got that we expect things to rise-rise-rise ... in
particular inflation. In a deflationary environment, you
could be losing dollars, but still come out waaaayyyy
ahead if you're losing 'em at a slower/lesser rate than
the rate of deflation.

Aside from the usual acknowledged problems with deflation
spiraling out of control (negative self-feedback loop), I'd
argue that a steady rate of deflation is better. The dollar
you save today will buy twice as much tomorrow.

Will Trice <me[at]invalid.com> writes:
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If there's deflation, TIPS principal is reduced at the rate
of deflation, just as during inflation, the principal is
adjusted upwards at the rate of inflation.

That would really stink if deflation hit - except that the
Treasury puts a floor on the value of the TIPS at the original
par. So if you buy a TIPS bond at par, the principal can never
go down from there, even if there's deflation. But if you
had such a bond for, say, 10 years and the principal had
been adjusted upwards to, say, 140% - deflation would diminish
the principal.

So, yes, TIPS are, potentially, hit by deflation in a way
that traditional treasury bonds are not.


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Rich Carreiro wrote:

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Why would you need protection from deflation? Or is this protection
only needed with inflation-protected securities?

-Will

william dot trice at ngc dot com

BreadWithSpam[at]fractious.net writes:

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Yeah. I (through no particular foresight) got in on
those back in 2001. Probably been my best performing
asset since then 1/2 /

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Two notes, depending on what you think of the chance of
deflation:
1) Series I savings bonds can never have a negative yield.
If deflation is more than the fixed rate portion, the
total rate bottoms out at zero. That's not true of TIPS,
where deflation can reduce the principal value of the bond
(but not below the face value at issuance).

2) Related to that, a relatively newly-issued TIPS will offer
greater deflation protection than an old TIPS because it
hasn't accumulated much inflation adjustment beyond the
issuance face value backstop

- quote -

Do you happen to know what the tax treatment is of a negative
adjustment due to deflation? Negative OID? Capital loss?
Basis adjustment?

--
Rich Carreiro rlc-news[at]rlcarr.com