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Old 02-14-2010, 09:57 AM   #10
Greg Anos
Grand Sorcerer
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I suspect the person in question is being rather astute...

There is no way to describe the situation without stepping on some toes, I'll step as lightly as possible.

The US is undergoing a structural deflation, on top of which is a cyclical deflation. Canada is not undergoing a structural deflation, although it may be undergoing a cyclical one.

What is a structural deflation? A prolonged and continual drop in purchasing power among the numerical majority of people in a defined jurisdiction. It occurs despite the business cycle pattern, which has shorter term growth and shrinkage. (Currently, US is suffering from both structural and business cycle deflation.)

The US has some of the highest nominal wages in the world. For the last 10 years, the leading large scale employers have been increasing their profits by labor substitution, i. e. substituting lower paid workers elsewhere in the world for higher paid US workers, and eliminating the higher paid workers from the payroll. This pattern will continue until there is no longer a profit, in using substitution, i.e. everyone is working for a "world wage". For the parts of the world where the labor is being gained, the trend is locally inflationary, in the place where the labor is being lost, it is locally deflationary. The US has been coping with this problem with inflationary money policy and strong propaganda that this isn't really happening in the local economy. In a macro sense, it can be nothing but propaganda, because if the all the displaced worker got better jobs (sic) then the cost to the economy of labor substitution would be negative, and the people doing the substitution would be losing money by the act. (To fully explain would take several pages, I'm trying to keep this short.)

Canada is underpinned by a different type of economy, a commodity based structure. It cannot have labor substitution for those industries, as they are immobile, the labor must go to the source, wherever it is located. Therefore, as long as there is demand for the commodity(s), the overall economy will be driven by the commodity cash flows. Over the last ten years, this has been inflationary, boosting the Canadian economy.

In summation, deflations are always "hard" labor employment environments, and inflations are always "easy" labor employment environments. The young man involved may not grasp the details of the bigger picture, but he has notes the details that affect him....
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