Existing homes sales did some cliff diving of their own from December to January. This is classic deflation psychology at work: “Honey, let’s wait 6 months to buy the house.” 6 months later: “Hmmm, prices are still falling. Why don’t we wait it out another 6 months?”
This is why the government must extinguish the fire. Deflation is as much a function of psychology as a function of money. You can pump all the money you want into a system, but until you give consumers the confidence to spend it you’re just pushing on a string….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.