isn't dualflation the worst sign of depression

Discussion in 'Economics' started by morganist, Nov 14, 2009.

  1. there is inflation and deflation at the moment which is regarded as biflation.

    none essential goods are deflating and essential goods are inflating although aggregating in deflation. so it means that people are not buying things they want and having to spend more on things they need. so surely this is worse than either inflation or deflation because people aren't just spending less in general they are spending less on wants and more on necessities because the real cost of living is increasing. you might expect a reduction in wants in a recession because people tighten their belts but when needs appreciate it means it is more than that, perhaps supply side problems.

    so surely biflation is the worst sign of depression as wants have depreciated and the cost of needs has rocketed.

    just my opinion but i think it is a very bad sign.
  2. I thought the term was refered to as biflation?
  3. good point. i go that confused.
  4. The term is Inflationary Depression:
    From Ron Paul's "End The Fed" book...
  5. I've never heard that term dualflation or biflation. But it is a good point that all prices don't move to the same degree. And some of the govt stats are quite useless when it comes to measuring the impact on people in their everyday lives (for example food & fuel prices being dropped from some inflation measures). - - Inflation (which is a monetary in cause - through excessive money printing) can show up in some sectors, but not in others. Thus we saw house prices inflated for years, while the price of many consumer goods imported from China held low.
  6. I agree with the notion of deflation of non essentials VS inflation of essentials, the only problem I see is the rising of precious metals in such a scenario as they would not be rated as truly essential I would think. Unless ofcourse the suply demand story tips in favour of them to such an extend driving up the prices indeed.
  7. piezoe


    Priced in dollars, precious metals are going up because the buying power of the dollar is going down while demand for precious metals is rising. Inflation of the dollar price of items for which demand is holding steady or increasing is occurring. This includes food and energy. Price in dollars will fall for items for which either the decrease in demand or the increase in supply is in excess of inflation. Thus there is deflation in some sectors and inflation in others as Morganist pointed out. Unfortunately, inflation is occurring in essential non-core items -- food, and energy. The deflationary period in energy leading up to the 2008 US election is now over. If the dollar continues to drop in purchasing power, unless there are unusual declines in demand, inflation will creep into those sectors that have recently seen either steady prices or falling prices. So it is the net of supply-demand and dollar inflation that determines whether prices rise or fall in dollars.

    ET posters are in two camps: those that believe the recession will be more severe and last longer than realized and create a fall in demand that will result in actual deflation in the overall economy, and those that believe the weapons of the Federal Reserve are sufficient to prevent deflation. I am in the latter camp. I believe the Fed has all of the weapons it needs to prevent deflation in the overall economy.

    However I am not at all convinced that the Fed has all of the weapons it needs to prevent excessive inflation. Raising interest rates and selling bonds are of course two powerful weapons at their disposal. But these can wreak havoc with a struggling economy. There is at least one factor that plays into inflation that is beyond the Feds control, and that is fiscal policy. I don't think the Fed has much control of that, and therein lies a great danger.

    The US is in a favorable position so long as the dollar is the world's reserve currency. This causes foreign central banks to step in and support the dollar. If reserve status is lost, and it could eventually be, the danger of run-a-way inflation will become an immediate threat. I don't believe central banks will begin a major move to divest their dollar holdings, though they will surely be reluctant to add to them, until a new reserve currency is established. Divestiture of dollar holdings should occur simultaneously and subsequent to that event. There may be covert divestiture prior to that event. The more we hear of talk of international trade being conducted in currencies other than the dollar, the more concerned those of us holding dollars need be.

    In the meantime we should see more and more U.S hard assets being bought with foreign held dollars. For these foreign parties, this serves as a hedge against further dollar devaluation.