This is why Americans won't see it coming.

During the first four years of the recession I spent an obsessive amount of time trying to understand deflation. I own property, and at that time I was trapped in the deflationary spiral. Everyone I knew or even talked to casually on the street was running out of a burning building. I however dug in and looked for any glimmer of hope to feel like my efforts weren't in vain.

At the time, everyone was freaked out about hyperinflation. And I had a reset on the loan on my house. In hindsight, if I would have known more about the way inflation and deflation works - I would saved many years on my life. It was a deeply stressful time. I lived in daily fear that interest rates would spike before I was able to get into a fixed rate loan. And I'd loose my stuff.

I grew up poor and knew the hazards of giving up. Growing up we pretty much moved every year. This of course leaves a big impact on a child.

As an adult I began to understand the forces that made that happen. The rent trap. We moved every year because landlords would raise the rents and we couldn't afford that place anymore.

So when the recession happened I didn't think I would be better off giving up my property like everyone else was because not only would I eventually have to pay higher rent costs - I wouldn't have any control over my environment. If I hate something at my house - I can just find a way to make that go away. Through sweat equity or otherwise.

Anyway, enough about the back story of why I felt I even need to learn about deflation.

When oil started to fall, everyone started saying this would be a huge boon to the US. I didn't really think things would work that way this time because during the meat of the recession - it didn't make any difference at all.  It was hard to understand why this happened. After spiking to 4.50 dollars a gallon, oil fell to around 40 bucks a barrel during the recession. I think gas was in the low 2 dollar a gallon range.

At the time I attributed people's behaviour (i.e. hunkering down) to the invisible hand. There was something in the economy that made people's fear impulses override the good feeling of having a few more bucks in your pocket. And now I think I understand what that fear impulse is.  Currency.

Everyone is calling what is happening right now a currency war. It's not really a war, but a result of deflation. I encourage people again to read this article or at the basic minimum - this post on why this is happening. I know it's boring.

I think the fear mechanism is that US companies start taking a huge hit on revenues because of currency fluctuations. Internally these companies start belt tightening and employees see that and start to fear for the future. This causes them to not want to spend because they fear their jobs are at risk. The last part I knew, I just didn't understand what really made people en mass start to behave in the same way.

If you see the headlines that past two weeks you can really start to understand the fear. All international companies are taking a fairly substantial revenue hit right now from the strong dollar. Apple is taking a 2 billion dollar currency hit. I believe Swatch (not an American company) took a 29% hit in revenue. That is a lot of percent. Companies are ranging the gambit right now. Even Google has taken a hit. Some of them make my eyes grow wide. Others not to much. But you understand when companies are taking that kind of hit, that filters down to employees really quickly. Wala! People start hoarding money.

Lately I wake up in the morning and say - really! Now I have to learn about currency trading to understand the world? This is bullshit.  Others have already given up most of their stuff, so why would they need to become more economically literate? It's not really something people ever need to know. But deflation could last for a few years. No one knows.

Right now the stock market is masking the fact that companies are taking a huge revenue hit. One day  soon I expect they will loose that ability. I think even Taiwan fell into deflation today. There is zero percent chance this doesn't effect us.