The Smoking Gun of Deflation

I almost missed this small piece of news among the masses of "news" that's pumped out by the MSM.

From the OC Register, we have Lennar seeks cuts from subcontractors.

Lennar Corp. is asking subcontractors to reduce charges for work they've already done or face a minimum six-month ban on bidding for work, a company executive said late Tuesday.

"As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services," said a letter sent to subcontractors in Lennar's Orange Coast, Corona, Temecula and Palm Springs divisions.

The letter tells subcontractors to either reduce their unpaid invoices by a set percentage or "be excluded from bidding future work for a minimum of six months."

Subcontractors getting the letters said Lennar had asked for cuts from 5 percent to 20 percent, depending on their trade and location.

Roos said similar requests are being made of Lennar subcontractors nationally. The firm has projects in at least a dozen states.

"Every builder is doing the same thing," added Roos, who works in the company's Western region office in Aliso Viejo. "Everybody understands that the market has softened. … I think everybody realizes in times like this … they need to manage their business accordingly."

"Their ability to absorb and pass along (savings) can be limited somewhat," Simonson said. "I think it would cause a lot of concern and resistance among contractors and subcontractors."

This is it!

And for those confused about what "it" is, this is the tip-over point. The builders are cramming the cuts down the subcontractors because they expect to sell the new houses they have yet to build for less. Nobody cares about what the previous owners paid because the new houses set the "comps" (comparable prices.)

For the subcontractors, it's basically go under now, or go under later. Human nature compels the go under later scenario.

For the fucked buyers, it's also a go under now, or go under later scenario. They will realize that there's no point in paying a carrying costs for 30 years. Far better, to declare bankruptcy and get it over with!

Bankruptcies destroy credit which is the definition of deflation!

Here's the part the inflationists never figure out. Bernanke can print till the cows come home but there's no way to channel the money into the exact channels that are blowing up. Nobody but nobody has that kind of omniscient knowledge of a global economy. Even if you lived in a town of 10,000, you can't have that kind of information!