Funny ET members can't agree on whether there will be inflation or deflation ...

Discussion in 'Economics' started by allaboutmoney, Feb 7, 2009.

  1. you could argue that the longer this recession lasts, the bigger the inflation will be once things turn around.

    less buying kills demand.... economy retracts... and explodes forward with stimulus at some point... the misallocation of financial assets will contribute to yet another massive inflationary bubble in the coming years.
     
    #11     Feb 7, 2009
  2. Why can't we have both?

    First deflation. Then massive inflation.
     
    #12     Feb 7, 2009
  3. thats exactly what I mean- people are expecting some kind of Japan 2.0 not going to happen.

    There are probably governments out there with the objective of deflation - for public and private interests... buy assets on the cheap and then inflate the shit out of the economy.

    They have been doing it in plenty of places around the world courtesy the IMF - think Argentina, Serbia, Turkey.... Russia...

    Turn it all into fertilizer and then grow grow grow.
     
    #13     Feb 7, 2009
  4. TGregg

    TGregg

    That's the thing. The OP is mistaken, most of the knowledgeable posters agree that we will (eventually) have inflation and perhaps a lot of it. The question we are all trying to get our arms around is whether we'll have deflation first and how much and how long.

    On one hand, we have the fed who's got a whole lot of incentive to avoid deflation, and theoretically has the ability to literally run the presses 24x7 to crank out money.

    On the other hand, the fed does seem to be doing just about everything it can to avoid deflation, but there is little evidence of inflation and some that we might indeed be heading for deflation. Of course, this is pretty unfamiliar ground and we driving over it in an unsound (soft science) conveyance called economics.
     
    #14     Feb 7, 2009
  5. Imo, the feds have the tools to moderate inflation but not much in the way of ideas to curb deflation. The feds outta open a new bank and lend money.

    There are entities and people that can borrow and repay but are plain old shut out of the lending market by no fault of their own.

    I thought it was the NY Times that borrowed money from Mexico @14 %, who wouldn't want to lend at those rates but for reasons unknown to me, it is not happening with US bank cos.

    The stimulus plan is laid out to create jobs but OTH commercial projects (jobs) are shut down because of lack of funding or refinance.
     
    #15     Feb 7, 2009
  6. Another urban legend. The monetary base was increased during the great depression and there was no inflation to speak of for decades.

    [​IMG]
     
    #16     Feb 7, 2009
  7. Debt-deflation theory of Irving Fisher:

    Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to (7) Pessimism and loss of confidence, which in turn leads to (8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

    This creates a cycle where the more debtors pay down debt, the more they owe.

    In the end, the economy has been tipped too far and will not recover to equilibrium which will result in a collapse of all debt in the economy or universal bankruptcy of businesses and the government. The only way to stop this process is to re-introduce inflation, to stop the cycle.

    The reason the great depression lasted so long with fits and starts lies in the fed taking away stimulus too soon. From May to September 1932, there was a recovery, due to the fed open market purchases. Due to many circumstances the efforts were not kept up, and the economy went back into the downward spiral.
     
    #17     Feb 7, 2009
  8. Japan tried to induce hyper-inflation, FYI.
     
    #18     Feb 7, 2009
  9. US is not Japan, the economic problems are not the same either, so one can't expect the same outcome
     
    #19     Feb 8, 2009
  10. maybe it's easier to predict the outcome for M0 based economies, and a bit harder for M1 based economies

    and since our economy is M3 (maybe M4, lol) based, meaning it's made of cash, a large amount of credit and other complex securities, it is very difficult for one who doesn't have all the numbers to predict a reasonable outcome

    ?!
     
    #20     Feb 8, 2009