Balderdash

Seven Reasons Inflation Won't Vanish

In response to deflationists:

Consider the following economy. Person A, Person B, and a bank.

Time 1: Bank has $0, Person A has $100 and a sandwich, Person B has $0 but a decent credit rating.

Time 2: Person A deposits $100 in Bank. Person B borrows $100 from Bank and buys sandwich from A with $100 and eats it. Now Person A has $100 plus $100 demand deposit in the bank, Person B has nothing, and the bank has a loan to B.

Time 3: Person A deposits $100 in Bank for a total of $200 deposited. Bank has $100 plus a loan to B. B has nothing. B defaults on loan because he has no job. The world is one sandwich poorer.

Time 4: Ben Bernanke gives Bank $100 for nothing so Person A gets his deposits back. Now Person A has $200, Bank $0, and Person B $0.
No sandwiches.

Net result? Twice the money and no sandwiches. Lesson? Inflation doesn't need wage growth and it isn't an equal opportunity virus. The bankers are getting free money and we're running out of sandwiches.

Stagflation or Deflation?

gold medal article!