Mish,
Your assumption is that because of monetary deflation, there is ALSO going to be CPI deflation [i.e monetary inflation did not cause CPI statistical value to go up much - but monetary deflation will make it go low? Even in 1929, asset prices were not part of CPI. I've only heard prices fell sharply - but for higher order goods like car, oil etc. Do you think food prices fell? Govt had price support mechanism for agriculture - And in Murray Rothbard's book - the govt wanted price controls on meat producers because govt thought they were gouging consumers!! - Also, they had rent controls. I dont think food prices and house rental fell in 1929 - CPI in 1929 must have contained some higher order goods also at that time. Today, the hedonics have all changed that]. Why cant we have monetary deflation, where higher order goods (like stock, bonds and real estate, mines, services etc) falling a lot and the lower order goods price rising? Since our GDP is mostly comprised of higher order goods, even if the higher order goods fall 30% and the lower order goods rise by 40%, still you could have monetary deflation of 25% (ie money stock falls). Why cant this happen?
Also, In a deflation, you are predicting - a dollar will purchase more stuff of lower order goods as well (it will buy more higher order goods is guaranteed because of money stock falling) i.e you are saying Dollar will appreciate against all goods? I understand your predicament that it can not appreciate against other fiats - but against lower order goods as well? i.e there is going to be lower CPI (since today's CPI mostly contain lower order goods)?
My brother is working in Japan. And he says food prices are not falling but increasing. You know why? They have import controls for food. Apartment rentals are not cheap. They are more expensive than US. i.e rentals did not fall like 30% when real estate crashed 60%. i.e even in deflation certain things will still be priced higher. i.e Dollar will lose value against those goods (mostly lower order goods). If so, interest rate goes up.
Which part do you disagree with? |
