No, prices need to come up relative to wages. You're about as dumb as dogshit when it comes to Macroeconomic Theory. Cause if you had any classical education in the discipline besides what you read off Wikipedia, you'd realize you're in way over your head. When prices rise relative to wages, GDP falls, you dumb turd. Why? Because discretionary income buys less. Less "things" bought = less output = lower GDP. Incidentally, thats why we're here! Perhaps you'd like to regal us how we should "inflate wages by 50%" without affecting CPI!! That should be good for a laugh! Here, let me give you a head start : http://www.fed.gov/ Its not about controlling anything. Its about letting prices - absent from Government intervention and tinkering - find their own equilibrium. Thats how free markets work. And thats the only way we get a recovery - after deflation has run its course. Tougher to do what, exactly?? No argument there. Let me guess, in your world, Globalization "just happened". You got everything right except the short-sighted part. Fixed economies suffer inflationary shocks = BOOMS = when excessive liquidity floods the market. The result is a Crash. Every economists worth his salt knows that. Everyone, except you, that is. Seems you subscribe to Greenspans fained ignorance. "I had no idea that 0% rates would create a Bubble. I SWEAR!!" You're an easy Mark.
Ilum, gold is a little bit of different kind of beast. Fear also makes it rise, as well as inflation concerns. So, when the market totally tanks to new multi-year lows, gold goes up. FWIW, it had been going down before that. Oil is good to look at to gauge inflation, pretty much most of the commodities are.
Higher unemployment will happen regardless if we deflate or inflate. Besides running at 130% max capacity, and re-setting to tighter credit and a maxed-out debt environment, economies can't grow with unending, high inflation. Its impossible. Inflationary Booms - through which we just experienced - always lead to deflationary episodes where prices return to mean. This is a natural consequence of Money Bubbles that inflate assets far above underlying value. Now, we can get out of this two ways - let prices return to mean naturally, clear out the excesses, and undergo a steep recession for the next 18 months. Or, inflate endlessly, bailout everyone in sight, and struggle to keep Real Estate values at or near Bubble Levels (its not working so far, is it?). The result will be a 1990's Japanese-style stag-deflation where the economy and prices continue their slide, albeit less severe, and we don't see growth for MANY YEARS. The alternative being thrown around - simply print money and hand it over to homeowners. Give everyone 200K to pay off their mortgage debt. Besides moral hazard implications, CPI would quickly go through the roof. Everyone would lend again, credit would be instantly restored, and prices across-the-board would shoot up extremely fast. The result will be another consumer-staples Boom, that will destroy tremendous amounts of earned and saved wealth. Why? Because wages are sticky. Prices aren't. Prices are more responsive and rise much quicker to increased demand. Wages grow at a snails pace. The result is higher price and stagnant wages = less consumption = lower GDP = recession. Once the freebie-cash is spent, prices are much higher and income, only slightly higher. Get it kids? There's no way around it. The Laws of Economics are a self-righting mathematical equation that automatically trend to equilibrium, regardless of path chosen. Recess, deflate, then grow. or Inflate, recess, deflate then grow. There's no inflate, then inflate, then grow option. Its an impossibility. Otherwise, every Third-World shit-hole would be a Super Power, by now! THINK. The only option now is how to dress this pig up for the Johnny Six-Pack Moron who doesn't know the first thing about Economics. Many of whom, happen to be on this thread Its all about Political Expediency. Bailouts, tax-cuts, none of it will save us until the economy has cleared itself, prices return to mean, and the consumer has some dollars to spend.
Either you need to start proof-reading what you write, or you need stronger meds. (I'm leaning towards the later...) Here's what you posted: "When prices stay artificially high, consumption and investment is held back. Shit is too expensive relative to income. IOW, the debt-to-income or cost-to-income ratio is too high. Prices need to deflate if wages stay stagnant." Tell us, Mr. MacroEconomic Wizard, how the fuck do prices that were "artificially high" deflate and "come up" relative to stagnant wages?