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To: Horgad who wrote (15808)	10/25/2008 5:18:02 PM
From: GST	5 Recommendations Read Replies (1) \| Respond to of 29622

Inflation and deflation refer to persistent changes in trend. We have had hundreds of millions of price movements up and down in the past fifty years -- but only one trend, inflation. What would be required to validate deflation is a change in long term trend. You don't have deflation on Monday and inflation on Friday. If you are calling this a change in trend to deflation it can only be validated as a multi-year trend. If you think that fluctuations are persistent trends then you would be calling inflation and deflation every six months. It does not work that way. A person calling for deflation is by definition making a statement about prices several years from now -- and same with inflation. It is the same for stock trading -- you don't have a bull market at the open and a bear market at the close. These terms also apply to persistent trends -- despite massive movements in the short term. Nor do you have deflation every time you have a bear market for stocks, or real estate. Ditto for recession -- recessions are commonplace, deflation is so rare that it is very, very hard to find. Asset price fluctuations, bear markets, recession -- none of these is deflation and none of these has proven to be an accurate predictor of deflation.

To: Horgad who wrote (15808)	10/26/2008 1:33:57 PM
From: Aloysius Q. Finnegan	Read Replies (1) \| Respond to of 29622

1929 - Is it different this time? "Deflation can not happen in a country with a FIAT currency, a trade deficit, a horrible balance sheet, and a bunch of officials willing to print unlimited amounts of money." I tend toward this position as well. However, could the situation today be distinctly different than the last great deflation? Interesting article in Ben Stein's NYT column this morning. The point being that the US does not face a liquidity crises as was the case in the depression ... but they do "urgently face a solvency crisis. In other words, banks would have ample reserves to lend but might lack assurances that they could meet all their financial obligations if these loans went bad." Regardless of how much money the Fed pumps into the banks "they have had so many losses and faced so much uncertainty that they dared not lend for fear of killing their banks with bad loans - so we actually have had a solvency crisis." "I assume the future will be much like the past, but sometimes it isn't." Gregory Mankiw argues along the same lines in his NYT article 'But Have We Learned Enough'. As he states " The Fed and the Treasury Department, intent on avoiding the early policy inaction that let the Depression unfold, have been working hard to keep credit flowing. But the financial situation they face is, arguably, more difficult than that of the 1930s. Then the problem was largely a crisis of confidence and a shortage of liquidity. Today, the problem may be more a shortage of solvency, which is harder to solve." I think I'll quit reading this stuff over breakfast.