I think the concepts of deflation and inflation are used too broadly. It is entirely conceivable to have both present at the same time. In fact, with a Fed doing everything in its power to stimulate money supply growth (ie enticing debtors to go deeper into debt), it should be *expected* that we would experience both. Easy money is like a stock split - Greenie is giving you a 2:1 split on your dollars only he doesn't want anybody to notice. Since the money doesn't flow everywhere equally, it results in severe price instability, inflation in places, deflation in others. From a corporate point of view, it is the worst of all possible worlds. They are pinned between raw materials costs that track money supply growth, labor costs that are "sticky", but weak pricing for finished products. And with the Fed trying to jam more investment capital out of safe places and into play, even more malinvestment is encouraged, further weakening the value of existing capital and pricing power.
Dollar devaluation, raw materials inflation, finished goods deflation, asset deflation, all at the same time, all squeezing the corporation.
BC |
