Randy_H

First Comes Deflation, Then Comes Inflation

JasonC

Good comment, though much of your argument could be equally applied to a pretty rough patch of deflation -- longer lasted than 6 months.

First Comes Deflation, Then Comes Inflation

Bernanke says deflation is "not really possible" because that reflects his worst fears. I think what you're missing is the money supply destruction that occurs concordant with deflation. Right now deleveraging is destroying more money than all the worlds' horses and all the worlds' men can create.

You also are not properly considering the two variables you simply cannot accurately predict: (1) how deep the deflation is during the deflationary period; (2) how long the deflationary period lasts.

Those factors drastically affect the likelihood of inflation following a deflationary period. For example, if a cyclical deflation begins resembling anything like Japan's liquidity trap, then even very-high inflation in the following decade will still result in net deflation, not net inflation.

It is that which keeps Helicopter Ben up at night.