Presently, deflation is a far greater danger due to the reduction in the amount of outstanding credit.  There are many more reasons to argue for a deflationary environment.  A deflationary environment means something totally different for investors than they have witnessed in the past one or two generations.  Being prepared for this economic environment is something few investment advisers recognize.  Read The Sentinel for more details.

This is a topic of which we have written extensively.  Real estate is in pure economic terms, a factor of production.  In practical terms, it really is a consumer good.  With the explosion in credit, it ceased to be a roof over your head and became a  vehicle for speculative investment.  The current real estate crisis (both residential and commercial) illustrates what happens in the early stages of a deflationary contraction.  Our publication discusses the proper approach to real estate in the current economic environment.

Deflation is a reduction in the amount of outstanding credit.  A consequence of this deflation is the observance of lower prices.  In recent times, deflation has been very evident in the residential real estate market.

In deflation, the existing supply of credit or money becomes more valuable since there is less of it.   Outstanding debt becomes harder to service.   Cash is king.

The inflation we have witnessed is primarily a product of credit creation.  Credit is an IOU or an obligation to pay dollars (or another currency).  Our dollars are representations of wealth and not real wealth.  Our dollars are Federal Reserve Notes created by a central bank that are legal tender and thus represent IOUs themselves.  When the supply of these IOUs expands, prices rise