Time to hunker down?

A new study out reports that Americans are moving from home to home at a rate not seen in years. In fact the last time this few of us moved around this little it was 1962 and there were far fewer of us then.

It was only a few months ago that we were still treated to a nightly onslaught of programs on TLC about people moving into new houses with a celebratory display of ikea wares. But that was then, this is now. Now, there is no moving up. Now, we are hunkering down.

Of course hunkering down is both a symptom and a cause of greater economic stress. A symptom as people who are worried about their financial future (even if they have jobs) start to hedge their bets by staying put in homes that they might have deemed too small, or in neighborhoods felt to no longer be desirable. That of course is one more factor in the ongoing meltdown in the housing market. Add it to the constrained credit markets and you start to see why even with a growing stock of ever cheaper homes on the market there are fewer shoppers.

But this immobility is also a cause of further stress. As people hunker down, both by not moving or shopping for smaller goods and services, they depress multiple sectors of the economy. To lure shoppers in, merchants and professionals lower their prices. Buyers then start to sense a pattern of sinking prices and realize that by holding off on a purchase a bit longer they will have greater buying power and their money will be worth more. Welcome to the wide world of deflation.

Deflation is, oddly enough, a situation where money becomes worth more. Spain is now in the early stages of what might be a deflationary spiral as prices come down in an attempt to spur business. But with little disposable income, no one is buying. Merchants, suppliers, professionals and factories shed staff, fewer can buy anything at all.

Of course the upside to deflation is that for anyone who has cash in hand it will be a buyers paradise- so hang on to your piggy bank. The US is unlikely to face such a fate however since the Fed has also said that it will issue up to one trillion dollars of debt to cover losses in various financial firms and housing loans. That is in effect printing another trillion dollars, something that in normal times would trigger inflation- where money loses its purchase power. Will the Fed, and the Obama administration be able to hold this balancing act until the bottom strikes and we start to move back up? Time will tell, but there is always the memory of the stagflation 70's to keep us up at night.