Deflation is a bigger risk than Inflation

Discussion in 'Economics' started by Daal, Oct 6, 2009.

  1. Daal


    The 0 on the chart represents the NBER 'recession is over' call. Inflation tends to keep on falling

    The fed's 'money' printing, is monetary base(bank reserves) which is NOT inflationary until it becames M2 which is not happening mainly because banks are not lending money on a net basis
    So for the next few years the risk is deflation, then after that I'm in the inflation camp like all the conspiracy theorists and fed bashers
  2. wavel


    One additional observation....

    Currently, we still reside within a capitalist framework and therefore in order to ensure that Mr bank manager of any said institution doesn't become the next Lehman Brothers, they will at some point in the very near future be forced to increase risk (lending) in order to maintain and expand market share, which is equal to M2 and therefore inflation in terms of your definition of what inflation actually is.

    The only refutation to this postulation is that every bank in existence today is now 100% guaranteed by the treasury.

    Ding-a-ling, and so the next round of banking centralisation begins.
  3. Yep, pretty much agreed on all counts. Add in the next rounds of loan defaults that are coming with ARM resets next year, plus commercial RE and credit cards, and you've got a pretty good recipe for deflation for the next 18-24 months or more.
  4. it depends on your understanding of inflation.
  5. Check back in a year to see if it's become any clearer for you.
  6. Daal


    Why would this time be 'different'?
  7. lrm21


    Yeah, I go with Von Mises

    Inflation is the expansion of the money supply

    We have inflation.

    The economy today is too complex to properly understand inflation at the end level.

    No one can predict were the new money will go, people keep expecting that inflation mean you bread goes from $2.99 for a loaf to $10.00

    The masses only see inflation after looking in the review mirror.

    ..maybe housing prices going up 25% per year is inflationary..yeah.

    Inflation is the expansion of the money supply. Today the money supply is expanding at a faster rate than GDP. How that will impact the end users, meaning us poor slobs down the road..well by then it will be too late.

    The final kicker, will be as the world moves off the dollar over the next 10 years. What the hell are we going to do with the extra dollars, somehow the FED will need to mop up, 30 years of reserve currency supply, but wait the Government still has at least another 10 years of deficit spending..hmm what a perplexing paradox.

    Deflation was a risk to prepare for 2 years ago up to the end of last year.

    We just had massive deflation across all asset classes.As the credit collapse occurred particularly debt based. Houses, cars, boats, 2nd homes, commercial RE, college funds, weddings, etc

    The FED has addressed it and with Helicopter Ben they will continue to address it, so IMHO inflation is were you need to be looking.
  8. You're right. I've firmly believed that the hyperinflationist theory is irrelevant for the immediate future due to the offsetting effect of credit destruction that is outstripping the Fed's print rate. When credit starts flowing again and U-level mean reverts, we'll be paying $4 for a fucking Snickers bar.