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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: eddieww who wrote (46223)12/11/2000 3:29:18 PM
From: Oblomov  Read Replies (1) of 436258
 
But how do you get deflation in the face of Fed easing and heavy printing?

Printing and easing only causes inflation if the demand for dollars does not rise at as high a rate as the increase in money supply. If the demand for cash is high (as would be the case in a debt crisis), then deflation results as uneconomic, illiquid tangible goods are liquidated to raise cash.

You are correct that inflation favors the debtor. We have just passed through a period of high inflation, though it occurred in stocks and real estate instead of consumer goods. And debt levels have risen most in those segments of the population who have greatest participation in the equity and real estate markets.

In an environment of high consumer goods and wage inflation, the lender is indeed the bag holder, and so they simply stop lending.
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