Dear Mr. Berko:

Dear N.L.:

There’s not a darned thing wrong with deflation. In fact, deflation is playing quite well in Japan. Contrary to the scaremongering of Japanese banks and real estate moguls, deflation was actually good for jobs and the economy, and the Japanese consumers like it.

Deflation, which causes a persistent drop in wages and the price of consumer goods, food, services, etc., also can have a few ill effects. Homeowners get stuck repaying high-dollar mortgages, auto loans, personal loans and other debts as their take-home pay decreases. Properties and assets decline in value; manufacturers and retail companies are unable to raise prices, and the consumer has a smaller nest egg. Frankly, considering flat-to-declining personal incomes in the United States, how much longer can consumers keep our economy afloat as prices continue to rise?

However, the Japanese are embracing deflation. Though the average wage in Japan has declined, retailers are devoting successful energies to providing goods and services that are less costly but still have good value. With lower wages, price-cutting has enabled the consumer to own less-expensive TVs, computers, furniture, clothing, autos, etc.

Even though Japanese consumers are earning less, they are buying more as prices decline. There’s an important message here.

The United States can’t continue to pass on higher labor and material costs for the goods and services it sells to the rest of the world unless the wages of the rest of the world increase to our income levels. Inflation has been pricing the United States out of world markets and forcing U.S. companies to move business and production overseas. Few folks overseas can afford our cellphone service costs, our clothing, automobiles and other products stamped “Made in USA.”

So now our largest export is military equipment. Fortunately, our military-industrial complex works diligently and covertly to encourage dissension around the world to keep arms sales flowing.

We need to reduce prices so consumers can buy more goods, products and services, rather than continue to inflate prices so folks buy fewer goods, products and services. We need deflation to give our dollar the power, rather than inflation, which requires more dollars to buy the same market basket.

Over the past 30 years, real wages adjusted for inflation have declined, while prices for goods and services have risen. However, the three reasons consumer spending has increased in those 30 years are (1) an explosion in home equity loans, (2) families with two working parents and (3) a banking system that gives credit cards to deadbeats, home loans to prison inmates and credit lines to riverboat gamblers.

Lower prices can increase our exports, improve employment, generate more tax dollars, expand consumption, make insurance more affordable, reduce college costs, etc. Inflation makes these things more costly and discourages consumption.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com