Inflation vs. Deflation vs. Stagnation---Which is Worse for the US?

Originally posted by Rockpuck
Which is exactly what the Gov TRIED to do, imo .. was inflate the currency to pay down bad debts with a devalued dollar (since debts don't adjust for inflation).

It's ironic then that such a flood of dollars into the market caused deflation and credit contraction as a side effect,

Read my post here:
www.abovetopsecret.com...
EDIT - I saw later you wrote the same .

Originally posted by Rockpuck
which will in the long run I believe, lead to hyper inflation (like why big unit is saying).

Not hyperinflation, but high inflation is possible.

The main thing is US $ is still the only one world reserve currency (because of oil trade). When it ends (if ends ever) then hyperinflation will happen in USA when all those worthless $ come back home .

Originally posted by Rockpuck
The reason oil exploded was due to mortgages leveraging oil to turn red into black on their balance sheets as the housing disaster first began taking hold..

We went from a market of actuality and rationality to a market of bold speculation and leveraging and completely unregulated fluctuations..

IMO we will not see oil that high for a very long time.. unless it is artificially held up .. something I don't see the world standing for. Banks made the price rise, but OPEC declaring a set price?

Forget about it.

I agree 100%!

Good to see in this forum there are still people who understand what is going on .

Originally posted by Rockpuck
I think we all agree on exactly what you say. Deflation, like inflation, is natural in a business cycle, hyper anything is horrible, but hyperinflation you cannot recover from.

I lived almost three years in hyperinflation (1992-94).

You can recover from it.

Old currency is substituted with the new one . That's the solution.

[edit on 21-11-2008 by Vojvoda]

[edit on 21-11-2008 by Vojvoda]

A:Inflation
Credit is easy to get.
Businesses cover losses by taking out more loans.
Jobs don't disappear too fast.
Pay goes up very quickly over a few years.
Price of goods skyrockets.
Productivity remains the same or increases slightly.
Relatively low levels of homelessness.
Slow decline in the quality of life.

Solutions
Bailouts, handouts, closeouts.

Which leads to:

B:Deflation
No ability to secure credit.
Many businesses close.
Mass job loss.
Price on goods plummets.
Productivity plummets.
Mass homelessness.
Starvation.
Suddenly decline in the quality of life.

Result
Employment assistance, new business loans and grants, large infrastructure projects.

Which leads to:

See point A.

Jon

reply to post by Voxel


That was an excellent post...and definitely easy to understand!

Thank you Voxel!!

The great depression after the crash of 29 was deflationary due to the contraction of the money supply. When the money supply contracts banks call in their loans/mortgages hence the increase in homelessness.

This deflationary situation is temporary at best. Oil prices might have fallen due to the illusion of the dollar being stronger but as soon as OPEC adjusts the supply for the current demand we'll soon see oil prices rise.

Helicopter Ben Bernanke and Fed crew can avoid the deflationary recession with the ability to make money readily available by "inflating" the money supply which is essentially creating more money out of thin air.

Unfortunately, we already have an excessive money supply and nothing behind it but hot air. With the bailout billions or Trillions being printed and added to that monumental sum and as well as fewer tax revenues as unemployment rises, the US govt won't be able to meet it's debt obligations making our dollar worthless and with that we'll soon see Hyper Inflation before too long.

The good thing about Hyper-Inflation is that as prices increase dramatically incomes will eventually have to increase as well making it easier to pay down existing mortgage debt with inflated dollars in the long run.

Very enlightening discussion, I enjoy the multiple points of view. I can understand the stuff here, unlike CNN or The Economist (which is at least better than WSJ or CNN). I think we'll see deflation, a deflationary spiral, normality, inflation, and then hyper-inflation.

reply to post by Merle8


This has been a great discussion and I continue to thank everybody for their perspectives, knowledge, and insight to better answer my themed question of this thread.

reply to post by nh_ee

The great depression after the crash of 29 was deflationary due to the contraction of the money supply. When the money supply contracts banks call in their loans/mortgages hence the increase in homelessness.

True, but no one called in loans this time did they? .. They had to take the hit directly.. then again .. asking your average home owner for the balance of their mortgage is impossible LOL ..

However we have seen trillions disappear in the markets, in capital, in equity.. THink about retirements thrown into tailspins due to this? .. something my generation will have to deal with later..

This deflationary situation is temporary at best. Oil prices might have fallen due to the illusion of the dollar being stronger but as soon as OPEC adjusts the supply for the current demand we'll soon see oil prices rise.

Demand has not decreased by much .. nor increased.. it's essentially decreased only slightly due to economic contraction .. normal growth is only as high as our economic growth..

OPEC may dare to try and leverage the price of oil, but we would see the collapse of OPEC if they did, imo ..

The good thing about Hyper-Inflation is that as prices increase dramatically incomes will eventually have to increase as well making it easier to pay down existing mortgage debt with inflated dollars in the long run.

You are thinking Consumer Inflation ..

The currency can suffer severe inflation without personal incomes increasing (see 2001-2008) .. where the price of goods, food, energy, oil, commodities .. all increase, and wages stagnate or decrease..

The FED and the Gov have thrown TRILLIONS of dollars into the system, but the banks are holding onto the funds.. to get the economy moving the money has to filter to the economy, the smaller businesses, home owners, consumers.

When the economy starts "picking up" .. we will see higher inflation as the ratio of Lost Capital and new Monetary Supplies decreases...

The gov could throw essentially 4 trillion into the system when 5 trillion in capital is lost in a 2 month time span....

MOFreemason

Economics is an imprecise science.. unlike what many think. There is NO right or wrong answer, there are no predictions, no absolutes, no sure grounded theories.. because in time every idea, thought, theory or hypothesis is shot to hell when the Market decides to do what it wants.

We can look at the data given to us and, through understanding the basic principles determine an educated guess. Not a single person here has said the same thing twice, but somewhere in the mix of all these ideas and thoughts lies and approximate truth.

And it's always nice to see an educated conversation take place on ATS!