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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 374.33+0.7%Nov 18 4:00 PM EST
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To: RJA_ who wrote (42795)11/15/2008 4:06:15 PM
From: carranza2  Read Replies (1) of 217862
 
The traditionalists would tell you that there is no deflation because the stock of money has not decreased. Quite the opposite. It has increased tremendously. They would be correct, but this doesn't mean the same attributes of deflation are not being felt.

For various reasons, credit has indeed decreased, which leads to much the same result as a decrease in money supply - lower prices.

That the increased supply of money on which credit might be built has not been put to use or is hoarded or does not have the velocity we typically see, whatever, makes no difference for the result is the same as would be in a classically-defined deflationary environment.

Some folks think the traditional definition - contraction of the money supply - is now outdated. Maybe so, maybe not. I am certainly not qualified to say. But there are indeed falling prices all along the economic front so perhaps there should not be a hair-splitting contest over definitions. If we have negative inflation, I think we can safely say there is deflation.

The problem, of course, is making sure the measurements are correct. What is the baseline from which correct or even reasonable measurements can be made? There can be lots of manipulation and innocent errors made in the process. Lies, damn lies and stupidly-formulated statistics all fit in the same pigeonhole.

Economists will probably still be arguing over these points, and ignoring the policy responses which should be made, as deflation wreaks its havoc.

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