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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (77778)4/16/2008 1:21:20 PM
From: stockfiend  Read Replies (1) of 116555
 
You claim you never said low bond yields, credit contractions, and house-forfeitures are deflation yet you have repeatedly cited these elements when arguing both that we're in deflation and pillorying those who argue inflation. You're selectively coupling and decoupling your cause/effect relationships to suit the context.

Regarding the reduction in money supply and deflation, money and credit have contracted but they're still well in excess of where they should be for the underlying productive capacity of the economy. The excess money previously tied up in credit leverage is now unwinding and finding its way into non-housing assets, which is why we have inflation even though money supply is decreasing. If money supply and credit fall below the productive capacity of the economy then we'll have deflation. The U.S. Government is not going to let that happen.
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