MIsh,
I see that you and Saville have a similar definition of money supply, but I agree more with him when he says that credit contraction, in itself, is not deflationary. I guess he is implying in the short and intermediate term. It is certainly deflationary in the long term unless the gov and the feds act as they have and will always. So serious defflation in sight, in my very humble opinion.
321gold.com
...
Similarly, a decrease in the supply of credit could lead to a decrease in the supply of money, but credit contraction is not, in and of itself, deflationary. For example, when a bank suffers loan losses the immediate result is a contraction of credit, but not a reduction in the supply of money. This is because the money that was created when the loans were made still exists after the loans fail. In this situation, however, the bank's ability to make FUTURE loans may be impaired by the loan losses, meaning that there could be less money-supply growth in the future. |
