To: John Vosilla who wrote (58525 ) 4/18/2006 12:29:02 AM From: bond_bubble Read Replies (1) | Respond to John, 1973 did NOT have credit bubble. For credit bubble to exist, interest rate has to decrease. This happened in 1920s and happened AFTER 1980s (i.e after 60 year span, long term interest rate started decreasing). This is why this time bust is going to be like 1929 instead of 70s. Also, for some reason, you are assuming, in 1929, CPI was always negative. That is not at all true. If you look into BLS website, the CPI was negative only for 2 years and it fell by about 15% in 2 years!!! Assuming RE fell by 80% and RE is part of CPI, this 15% drop could easily be accounted for just in RE. In other words, even in 1929 depression, CPI was more than 4%/year if you exclude housing!!! In 1970s, I believe it was the commodities and oil (PPI) that were soaring and the CPI was somewhere around 7-8%. Even in 1929, commodities did not fall fast enough (i.e PPI was fairly stable because of govt support, money printing etc). So PPI was fairly high in 1929 depression. Stagflation was obvious in 1970s because the debt was owned only by the govt and people didnt have much debt (for them, 1929 was still in memory to load up debt). The 1970s credit boom continued because the people were then loaded with debt (to the current generation debt wipeout by inflation in 1970s is in memory). Now, who else is left to load with debt? Both govt and people are loaded now. So, once you can NOT load anymore debt, you get deflation!!! Higher price in recession is possibly a fact of paper currency whereas in gold standard one would have had the opposite i.e deflation in prices in a recession!! In 1929, UK had inflationary CPI and credit deflation!!! That is not the same as stagflation in 1970s. In stagflation, you have recession because of inflation - but there is no credit bust. Credit bust coupled with stagflation is 1929!! As a matter of fact, just as today's Fed is using Core CPI (instead of CPI) for inflation targeting, 1920s Fed used some non-CPI (I think they used wholesale price which was declining because of productivity) metric for price stability!! So, that price was stable - but the CPI was not low as many literature would indicate (look at BLS data for CPI).
