JCC

The Economic Trifecta: Inflation, Devaluation, High Interest

Steve - I appreciate your intelligent argument. I agree that the danger of inflation is not eminent, but it is certainly possible upon recovery. You are correct that it could be avoided with an L shaped recovery. I submit that it is also possible with a U shaped recovery, depending upon the economic policies used at that time.

Currently monetary velocity has slown to a crawl, which if anything is a deflactionary factor. When velocity increases, then we must very carefully manage the monetary supply to avoid significant inflation. This might be difficult but it can be done.


On May 31 10:29 AM Steven Hansen wrote:

> "First the attribution of the quote was wrong. It was Laurel and
> Hardy, not the Three Stouges.' - Dave Wrixon
>
> Your are right. i was so concerned about getting the phrase correct
> that i did not realize the attribute was to the wrong people.
>
> Let me be clear on the point of inflation - i do not see this as
> an eminent problem. but if i would have written one year ago about
> fears of deflation, what would you have thought?
>
> you cannot keep taking different drugs and not expect a reaction
> between the drugs. the fed is conducting monetary policy on the foundation
> of computer models. if anyone has some statistical information relating
> to similar economic conditions from the past, please share it.<br/>
>
> i find it interesting that the punters believe
> - we are exiting the worst global economic situation since the great
> depression,
> - the government can spend money like there is no tomorrow,
> - the fed can massively expand the money supply,
> - that we can destroy massive amounts of wealth,
> - the boomers are exiting stage right,
> - we can dramatically increase our taxation,
> - the whole world can engage in QE
> and you can predict the outcome. not one swinging dick can say what
> will happen next.
>
> i remain convinced that when a recovery occurs - there will be inflation.
> however, if this is a L shaped recovery, i would agree inflation
> most likely is not a concern.

The Economic Trifecta: Inflation, Devaluation, High Interest

We exited World War 2 with debt being the quivalent of 120% of GDP. At that time, similar to today, many were crying about eminent out of control inflation. It did not happen!!

The Bank of Japan made huge debt purchases between 1997 and 2003. Many predicted run away inflation. What happened - Prices fell.

You reported a lot of interesting data, and it is generally a good article. But like many, the article fails to predict based upon factual analysis. Maybe we will have hyper-inflation, but it is by no means necessary, not is it a a foregone conclusion. Proper handling of the economy can avoid an inflationary conclusion.

Furthermore, in the short term a major worry is deflation.