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Non-Tech : Deflation
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To: Maurice Winn who wrote (225)1/19/2004 9:54:45 PM
From: JF Quinnelly  Read Replies (2) of 621
 
In the 1920s the Fed enabled a huge expansion of credit, but there was no inflation accompanying it. The best explanation seems to be that there was an underlying deflation that the inflating money supply masked. Since prices remained stable, no one was the wiser. Only the Austrian School economists warned of big trouble to follow the large credit expansion.

Credit expansions have their limit, and are followed by recessions and credit contraction. The recession following the 20s was greatly exacerbated by faults in the American banking system, which allowed one third of the American money supply to vanish as banks failed. And thus the Depression.

I doubt that we will have another Depression, but I think something ugly is going to follow in the wake of the spendthrift policies of this current Administration.
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