Inflation or Deflation

Many pundits believe that we face hyperinflation in the future because of the "borrow and spend" policies the government is currently pursuing. But something has to happen to the "debts" that are owed. Debts that are not repaid (defaults) create more deflationary pressures due to counterparty losses. Inflationist argue that the government will print money, debase the currency, and create massive inflation. They can print all the money they want, but how do they get it into the system in a manner that creates inflation in light of the severe deflationary forces in play?

Category:

People & Blogs

Tags:

• federal reserve
• economic collapse
• currency
• US Dollar
• inflation
• deflation
• depression
• recession
• gold
• silver

[thane17]

continued, everybody has this blind faith that the government wont let deflation occur, and thats basically the inflationist argument. Well i'd like to hear exactly how they think they can pump that much money into the system that fast to counter deflation. The only way I see it is if Helecopter Ben drops it from helecopters like he's threatened. In that case im an inflationist.

[watcherjohnny]

@thane17 We are seeing things the same way at this point in time. I wonder if Ben and his buddies realize how much trouble they are in?

[adventuresineurope]

It would seem to me that deflation is never a 'real' concern when we can inflate at will. Isn't this what Bernanke has been trained all his live to do. Print money. Is not the very definition of inflation the increase in the money supply?

[watcherjohnny]

@adventuresineurope Indeed, until recent times, inflation was defined as an increase of the money supply. And we've done it on massive scale for decades. The problem we face now is we seem to have reached "maximum borrowing capacity". We can no longer service our current debt loads. Ben can "print" all the money he likes, but how do you get it into the hands of consumers (70% of all economic demand in the US)?

[mitzy4459]

to the unsilentgrave.. Email me at mloner4@aol.com please i have some questions

[rockstar728]

actually, when debt is not repaid but defaulted on, money is not destroyed. that money was spent and is out in the wild. if the lender becomes recapitalized, that is inflationary.

in your analogy, we dug out all our dirt and sent it to China. then since the hole needed dirt, the federal reserve invented more dirt.

if debts are repaid all the way to the federal reserve, that is deflationary. however, that is not happening.

[thane17]

@theunsilentgrave I'm not saying we'll have Deflation, tho. But I'm saying there is a significant risk of it and many people dont realize this. Right now the dollar is plunging as well, which of course is very inflationary. So we'll see what happens. If the dollar collapses first we have inflation. If the credit markets crash first we have deflation. But either way in the end it will be inflation. Because the Feds don't know how to do anything else.

[thane17]

@theunsilentgrave So by default market contractions are deflationary. And the further out the market is leveraged the faster it goes down. If the banks weren't bailed out in '08 we would have had massive deflation. Remember hearing "credit crunch"? It was from loans going bad. Credit destruction. Considering these things can happen overnight in our electronic world the Feds HAVE to be able to put money in that fast as well. And currently they are unable to.

[thane17]

@theunsilentgrave Again, check out Fractional Reserve Banking to see how credit is created and destroyed. Most Americans are one or two paychecks away from default. When they default it causes the debt to go bad, destroying it. Once that debt is destroyed it causes a chain reaction of debts to go bad as those holding the debt lose the money. Without lots of money being pumped into the system we can have a deflationary spiral that occures in a week. a full collapse.

[thane17]

@theunsilentgrave Money IS destroyed when debt is defaulted on. This is where you have it wrong. To support my argument here please research Fractional Reserve Banking. Most of the credit in our system wasn't created by the Feds or borrowed internationally. It was created in the Fractional Reserve Banking system. When a loan goes bad it is credit that LEAVES the system, which is the same as money being destroyed. Because credit is money.

[62636263c]

@theunsilentgrave Keep your eyes on the disappearing middle class, that is the important statement here. Remember, America's strength comes from its having a large and stable middle class. This is what allows for a large volunteer Army and industrial military complex.

[62636263c]

@theunsilentgrave Because of a new currency, or currency revaluation plus a decimated economy. Most will be in poverty, the rest will be wealthy. A two tiered system due to the wiping out of the middle class. A terrible thing to have happen, but a very likely outcome.

[thane17]

continued..... before the fed destroys the dollar we will have deflation. I still believe the gov. monetary policy wont change, and so we will eventually result in hyperinflation. But if one fully understands how debt default plays into this they cannot deny the legitimate deflation risk. And if deflation hits then all of us betting on inflation could lose big. Precious metals will probably be good either way though.

[thane17]

Respond to this video... So if we really understand economics we have to acknowledge that the rate people are defaulting on their debt is astonishing, and picking up speed, which is deflationary because it results in a loss of credit in they system. At the same time we have a gov. and Fed printing money which is inflationary. If the fed puts in enough money before the deflation hits then we get inflation. If the deflation hits before the fed destroys the dollar we...continued