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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Mike M2 who wrote (109711)3/18/2010 12:21:24 PM
From: Hawkmoon  Read Replies (2) of 116555
 
The deflationary pressures come from debt reduction and liquidation

Yes.. But the velocity variable, IMO, represents the degree of demand.. The higher the velocity of financial transactions, the more demand for exchange that results, which should lead to higher prices.

As velocity declines, IMO, it's indicative of diminishing appetite for exchanging goods/services. Therefore, deflation results until velocity increases.

Now.. within these very basic principles, appetite for credit fluctuates and provides a trend indicator. It's difficult to increase demand without people taking on credit in the belief that what they are purchasing will appreciate and return an ROI above the credit carrying cost.

Hawk
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