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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: GST who wrote (50609)	1/21/2006 12:28:21 PM
From: chainik	Read Replies (2) \| Respond to of 110194

Mish is using one of the definitions of inflation; this definition makes the most sense to me. en.wikipedia.org Sorry for getting into this argument, I am not good enough to make an original contribution here. Internet is a good medium for expressing your opinion, but it's not very efficient for reaching consensus on the terminology used in a discussion (g).

To: GST who wrote (50609)	1/21/2006 1:57:08 PM
From: pogohere	Read Replies (3) \| Respond to of 110194

It seems to me that Mish uses definitions of inflation/deflation as key factors in his economic analysis. Focusing exclusively on price is less useful as a definition of inflation/deflation if only because price is subject to so many variables: the temperature, wind speeds, drought, geopolitics, supply/demand, the level of interest rates, the amount of money in circulation, etc. Another variable is the expansion/contraction of money/credit. I find it useful to have a measure of that variable as a component of an overall analysis. Expansion of money/credit doesn't necessarily lead to price rises in all instances. Witness Japan. In Richard Duncan's "The Dollar Crisis," pp216-222, he writes about Japan's experiment with monetarism, by which he means expansion of the money supply. (Duncan does refer to deflation in conjunction with falling prices.) As long as we understand what he means when he uses the word "monetarism," we can have a discussion within the context he wrote about. Since in Japan in the era about which Duncan was writing businesses wouldn't borrow and banks wouldn't lend, velocity (the speed at which money moves from one hand to another) became a crucial variable. The amount of liquidity available was a factor, but not the decisive one. Duncan (p.226): "The world is flooded with financial liquidity . . . and this excessive liquidity has fueled a global credit bubble that permitted overinvestment, brought about excess capacity and asset price bubbles, and now is culminating in deflation. Central banks cannot overcome deflation in this post-bubble environment by lowering interest rates and bumping up the money supply. You can't fight liquidity with liquidity. Monetarism is drowning." Arguably, Duncan uses expansion of liquidity/credit when he means inflation and declines in prices when he uses the word deflation. As long as I can track what he means, I can follow the argument. So if Mish wants to use a definition of inflation that means the expansion of money/credit he can do so effectively so long as he doesn't ignore the other factors and so long as we are clear what he means by the terms he uses. I note that he has said repeatedly that there will be both inflation and deflation and that he can't/won't predict the order in which they appear. I understand his definition of inflation/deflation and don't find it a barrier to understanding his analysis. That, and having a grasp of monetarism and the effect of such other factors as velocity, supply/demand, interest rate levels and so forth make for interesting discussions. I believe Mish is close enough to the truth of the matter to have made and will continue to make very interesting and useful contributions to the discussion on this board.