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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (976)	3/1/2004 10:11:47 PM
From: gregor_us	Read Replies (2) \| Respond to of 116555

Jim Puplava is Tempted Strongly By the Textbook Definition of Deflation--but "god love 'im" he smartly refuses to swallow that textbook thesis whole. I refer to Webster’s definition of deflation: a lessening of the amount of money in circulation, resulting in a relatively sharp and sudden rise in its value and a fall in prices. As mentioned in a previous essay, inflation and deflation are both sides of the same coin. They are both a monetary phenomenon. But then he goes on to say: Within the next 12-18 months I fully expect a deflationary storm front to hit the financial system and the economy. The debt overhang will begin to implode with rising interest rates causing financial asset prices and real estate prices to fall. This will be deflationary. What the Fed and the government will do to counteract this deflationary storm front will be to expand the supply of money and credit within the system and the amount of money spent within the economy. This will bring about inflationary forces that will counteract the prevailing deflationary headwinds of a collapsing financial system. What we need to see more of however is Economists and other keen observers of the system acknowledge more fully that Economics is a Social Science--and therefore human behavior is not only key--but operative in every discussion about these matters. Webster's dictionary and Samuelson's Econ 101 are handy to nail down one--and only one aspect--of these probes--but--try shaking Webster's "at" a Deflationary Depression when things get all twisted and loopy. (Thanking JWCB for "twisted.") Essentially, Puplava is describing what I believe are seeing already: A deflationary paradigm inside of which policy makers are desperately trying to spark inflation. He sees another leg down in the deflation story--as do I--and then he sees more ammo brought to bear from the policy makers--as do I.