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To: Jon Khymn who wrote (565)	5/11/2003 6:13:54 PM
From: MeDroogies	Respond to of 795

Stagflation is RELATIVELY high inflation and no growth. I really don't see deflation as a major issue. Primary reason is because so many doomsayers have (correctly) placed part of the bubble's cause on easy money, which has only gotten easier. Easy money = inflation. HOWEVER, productivity growth (which doomsayers for years say was non existent) offsets inflation. Much of the boom of the 90's was due to productivity growth. This growth demanded additional capacity to fuel more growth, which called for "easy" money. There are several answers to deflation and the liquidity trap. None are good, and all have questionable histories. The first is extremely easy money (0% interest rates). The second is deficit spending (already have that). The third is monetizing debt and deficit (call that negative interest). I don't think deflation is likely because there are so many scenarios to help offset it. The beauty of fiat currency is that it can expand or contract to meet the needs of a market. Unfortunately, in the hands of irresponsible governors it can be handled poorly, as we witnessed in the 30's (though that was primarily due to lack of knowledge or understanding). Japan isn't a good guide, because of the fiscal irresponsibilities they engaged in with the Keiretsu and Postal Banking systems. Not to mention the political instabilities tied up in their stock and real estate markets (trading them for favors). The US may have a touch of that Japanese disease, no doubt, but we are much more open and transparent. It's the hallmark of the system. Enron could've gone unnoticed for several more years if it had occurred in Japan. Right now, relatively high inflation would be above 2%, based on the last 15 years. That is why I'm betting on stagflation.