Hi Tom:
Well, there has been two significant depressions in U.S. history -- the 1870-1890's depression and the 1930's depression. Arguably, the fact the the economy fell into depression from a more normal recession due to ill-advised monetary policy, particularly tightened credit. Since the 1930's, the Fed has seemed to understand that avoiding depressions at all cost is critical, so I doubt that they would knowingly allow (or worse yet, abet) one to occur. General social welfare, political expendiency, as well as the ability to quickly dig out of the difficulty, would seem to favor inflation (even hyperinflation).
More broadly, I think that a worldwide demand collapse is not possible in this century, especially given the growth paths of India, China, and other developing countries. Hiccups along the way, yes, but not sustained depressions. |
