Deflation – but not why some say

The U.S. economy is beginning to swirl around the drain as a catastrophic bout of deflation may be rearing it’s ugly head. But it’s not due to Americans’ unwillingness to spend.

CNBC’s Alex Rosenberg surmises that the coming deflationary spiral is a failure of the fed’s policies to get Americans to spend more:

This despite years of ultra-loose monetary policy, which theoretically should spur inflation by making it more attractive to spend rather than save money.

The blame may need to be redirected just a bit.

Average Americans aren’t stuffing dollar bills into their mattresses or putting everything in tangible assets – they just don’t have anything left to spend. The only ones with money are the ultra-wealthy and they make up a very small part of the economic engine. The mega-rich will only drive up the price of rare art and really big boats.

The U.S. savings rate from March to April actually saw a drop that matches one of the largest in recent history from July-to-August in 2014. The money isn’t getting socked away.

The real movers of the American economy have been sidelined by free trade policies (NAFTA), expensive regulations (Obamacare) and the government taking money out of the economy instead of leaving it out to do what money wants to do – be spent.

A typical American family might have opted for a less-expensive medical plan prior to Obamacare, but now if they do, they get hit with a penalty at tax time. That moves more money from consumers to insurance companies (or the IRS) who have little reason to spend more than they have to. Insurance companies have to save those pennies for whatever new rule HHS dreams up next and every one of those rules is very expensive.

Open trade policies and unfriendly corporate tax rules have pushed lucrative manufacturing jobs and a boat-load of cash outside the country. If it doesn’t get spent here, it doesn’t grow the economy here.

The deflationary spiral isn’t because American’s don’t want to spend. It’s because Americans are cash-strapped and American businesses are being hampered by idiotic (pronounced Keynesian) economic policies.

While deflation is happening, hold on to cash if you are able – whatever it is you need will be cheaper soon.