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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (13849)	1/24/2002 11:03:25 AM
From: Ilaine	Read Replies (1) \| Respond to of 74559

That's a good explanation of that particular mechanism (Professor Irving Fisher - yes, the famous one - called it the debt-deflation cycle), but it seems to me that at the same time, there are industries which are able to benefit from a reduction in prices, and are able to make a profit. I am analogizing from what happens in a hyperinflation - people who are able to raise prices without any limit do just fine - people on fixed incomes do badly - debtors get their debts wiped out, creditors get wiped out, period. Is a hyperdeflation the flip side of a hyperinflation? If debtors are completely unable to pay, then creditors may not be all that bad off if the debt was secured with adequate collateral, but there won't be any buyers until the hyperdeflation stops. Everyone with cash just waits for things to settle down. No demand, like in Japan. No matter how low interest rates go, nobody is buying because they are waiting for the prices to go down. I wonder what is the tipping point that pulls everyone down? For a country heavily dependent on the price of commodities, massive deflation in commodity prices is probably enough - as in Thailand, Indonesia, Malaysia and the Philippines, 1997-98. But for an industrial economy, It seems like it must be something nationwide, like a massive currency devaluation. Prior to devaluation, all the people with hot money, like Jay, are nervous, looking for hedges, ready to run at the first sign of devaluation - and then they all yank their money out of the country's banks at the same time, causing the very thing they feared - zero liquidity, and macroeconomic collapse.