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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Tommaso who wrote (21887)1/21/2005 1:42:13 AM
From: Elroy Jetson   of 116555
 
The Federal Reserve continually made large additions to the U.S. currency during the 1920s and 1930s.

Real deflation is impossible in the absence of a hard currency. But why all that ugly deflation during the 1930s ??

Milton "One-Note" Friedman claims they didn't inflate quickly enough - but rapidly creating more money is always his answer to everything. No surprise there.

Apparently deflation is all too possible in the absence of a "hard currency". Oh sure, the coins were hard and the dollar both strong and absorbent, just like today - but the U.S. Dollar of the 1930s was no more "hard money" than the dollars of today.

How is a deflation possible when Bernanke has a new high speed printing press?

It becomes increasingly impossible to push further new debt into the economy. The collapse of excessive debt, caused when the lifeline of rapid new debt formation is cut-off, is deflation. Stunts like dropping money from helicopters immediately corrupts the system and the currency dropped from helicopters is no longer accepted as money.

Monetarism always fails and for the same reason each time. Monetarism subsidizes debt and grows debt faster than the growth of the economy. In the process misdirecting mountains of capital creating a leveraged house of cards which can't withstand and slight breeze.
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