If I were someone dealing with you, I'd have you drummed out, first of all. Even if English isn't your first language, which it quite evidently isn't, simply running your post through a spell checker first would have at least made it comprehensible enough not to have to read it like you were reading some manual for something made in Taiwan written in Taiwanese English. This is laziness on your part, pure and simple. No one's asking you to be perfect, but you should at least be comprehensible. That's number one. Number two, it also shows the usual economic illiteracy, thinking that second-rate areas that get the transplants from the first-rate are ever going to amount to anything other than second-rate areas that get the transplants. New companies, born of new ideas, have been made in the North and on the West Coast since forever, with a few notable exceptions. That will continue, for the simple reason that in order to have a first-rate economy, you have to be willing to spend on infrastructure and education. In bad times, the second-rate benefit, because everyone is looking to save a buck. In good times, everyone flocks to Silicon Valley, Boston, Wall Street, and so on, because in good times, when original things (Google, Amazon, Microsoft, etc.) happen, they happen in the first-rate places, not in the backwaters. If you think differently, it's because either this is the first cycle you've ever seen, and therefore have the wisdom of the young, or because unlike Yogi Berra, you see nothing when you look. Yes, the first-rate areas will suffer more than the second-rate. That's because they're where the big risks get taken, and for big risks to get taken, money has to be spent. Sometimes, you suffer. It's part of the economic game. That the second-rate suffer less in bad times just proves that they are, in fact, second-rate.
The Yen that was out is just credit, not the printed money. If the short Yen transactions (credit) are closed, then the Yen will rise, and no Yens are sent back. The rise in Yen would lower prices in Japan. The Yen is not like the dollar which is used in reserves outside the US. In addition, the lenders to the Japan government are the Japanese. So it is an internal circulation of money. Does this argument make sense?
I understand what you wrote except this part: "at which point the economy flips into massive inflation" why is it a sure thing? Is it "it may flip or "it will flip"?
Assuming the government and central bank continues to deficit spend to fight the deflation and downturn, then yes, it will flip. If the government and central bank somehow found religion and decided to slash spending and tighten monetary policy, then it wouldn't be guaranteed. But given history and the nature of politicians and bureaucrats I expect the former to be the outcome.
Yes it does, and yes I was too hasty with that response, but is it really that important. The point I was trying to make with my original post (on page 2) was that Klugman's approach if taken to the end, will result in the demise of the currency involved and hyperinflation, just like Mises said (see my original post). We've had our inflation, in asset prices, not consumer goods, for 40 years, and now it's time for the system to clear it's excesses, which are huge thanks to Greenspan and Bernanke, so the deflation will be huge, but to continue with the madness as Krugman proposes will lead to something infinitely worse. Does this argument make sense?
Awwww, come on, GoC, this is a poor argument... What percentage of the world's output were the Asian tigers at the end of the 90s? In contrast, what percentage of the world's output do the major Western economies that are at risk today represent? The whole point about creative destruction is that it's, well, destructive. Or, put it another way, what doesn't kill you does make you stronger, unless, of course, it does kill you. The only meaningful precedent we have, the Great Depression, didn't have a happy ending, as I mentioned in a previous discussion with achilles. At any rate, I don't agree with Krugman. However, I think that, as usual, the solution is not at either of the two extremes of austerity and unlimited stimulus spending.
Remember the basic rule "demand and supply". As the population increases the demand for all the products and commodities also increases. Whereas the supply is limited. So the price increases. Crude oil reached $145 per barrel due to massive demand from China and India. Real estate prices are sky-high in big cities with high population. I think India's food inflation is 18% or 20%. They have a population of 1.2 billion people. So high population is the root cause of high inflation.
You keep coming back to the same point, so I'll try to be clear. If rampant inflation doesn't take hold, rampant deflation will. It's one, or other. There is no middle ground. Why? The deficit is such a large chunk of economic output, it's impossible to gently extricate ourselves without popping the debt bubble. Nearly half the economy is tied to appreciating asset values, which get flushed if deflation takes root. This is why Beneracke will in all likelihood introduce new, larger QE programs as each successive measure fails. If you think nationalization is a boon for growth, I suggest you move to Russia and see how that worked out for them! Nationalization destroys innovation, investment and jobs because the profit incentive no longer exists in a Government-dominated market. So for every round of quantitative easing (re: "propping"), more jobs are destroyed, investment postponed, and entrepreneurial ventures, scrapped. Paradoxically, the net effect is higher unemployment, collapsing money supply and net deflation, which, from a Keynesian perspective, encourages an even larger round of quantitative easing. The cycle continues until cooler heads prevail (a natural Depression is allowed to take hold), or Central Bankers print more than is naturally being destroyed, and inflation takes off. Zimbabwe is a great example where unemployment and inflation skyrocketed. Japan had several mitigating forces that prevented a quick implosion - mainly their trade surplus, internal appetite for debt, and a Central Bank that opted for a "soft landing/lost decade". Their stock market lost 75% of it's value, from peak to trough, remember. Apply that to the S&P and we'd be at 400. This is what Bernacke and his Wallstreet pals are desperately trying to avoid. But it won't work. What I'm talking about here is all 'end-of-the-curve', or 'end-of-fiat-fractional-reserve', type-stuff. Recessions are traditionally met with lower interest rates. But after private and public sector borrowing gets maxed out, lower interest rates are no longer stimulative. Hence, quantitative easing/nationalization, which is the last card in the deck to play. After a few rounds of that, it exacerbates unemployment - the condition it was implemented to "solve" - credit destruction, and if prolonged, becomes (hyper)inflationary.
You're both right. Debasement, (growing) demand, and (curtailed) supply all contribute to rising prices. Debasement being the most prominent over the long term.