Low inflation poises U.S. economy for recovery

CLARKONOMICS: The lack of inflation in the U.S. economy puts us in a nice position for economic recovery.

The latest data shows inflation is not a factor in the U.S. at just 1.7% year over year. During the last 3 months, there was basically no inflation or negative inflation, aka deflation. Prices are going down instead of staying level or going up.

The benefit to a time like this, in theory, is that you have more effective money in your pocket. But let’s face it: The recession never ended in our lives, despite what the economists say.

What we have is a “growth recession” where the economy is still growing, but it’s happening so slowly that it feels very much like a recession, particularly if you’re looking for a job.

We have a litany of problems happening right now between the federal budget deficits and the train wreck coming with the Congressional standstill on the deficit. There’s a lot of rhetoric in Washington, though we’re short on solutions.

But mark my words well: Don’t miss the opportunity for the coming generation.

Housing is a deal if you’re buying. On the other hand, with little new construction over the past several years, supply and demand is falling back into balance and we’re beginning to see recovery in much of the country.

On the debt front, we spent ourselves into the poorhouse leading up to 2007, when we had an unprecedented level of debt vs. income. But now that’s coming back into balance.

Then on the issue of money overall: You may have none in your own wallet, but collectively Americans are sitting on trillions of dollars earning near zero interest in savings accounts and CDs. Meanwhile, business is sitting on its trillions because of uncertainty in Washington and with the European crisis.

Yet when confidence turns, we are on the verge of a meaningful recovery in the U.S. and maybe overseas, barring the unknown such as a catastrophic war, terrorism or natural disaster.

I know my optimism is hard for a lot of people to fathom. But there are far more reasons to be optimistic today than we’ve had in good long time. You don’t have to believe me. If I’m right, you’ll see it unfold.

It’s why you hear me say two things all the time. First, this is the best time to buy a home with low prices and low interest rates. Second, people need to keep investing. A lot of folks are terrified of investing in the stock market, through their 401(k) or equivalent, which is a big mistake. That’s where long term opportunity resides.

So take that leap of faith. Don’t wait until it feels safe. When you wait, you miss the opportunity.

Editor’s note: This segment originally aired July 17, 2012.