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

To: orkrious who wrote (100639)	1/14/2009 12:12:35 PM
From: forceOfHabit	Read Replies (2) \| Respond to of 110194

ork, I'm going to guess that it's the author's assertion that it's not a deflationary spiral that results. The system eventually reaches equilibrium, something that doesn't happen with money printing. Well, I suppose the system does eventually reach equilibrium. I thought it was generally agreed that the problem with [de/in]flationary spirals is not so much the new equilibrium that is eventually reached (after all if wages, prices, asset values, etc. all doubled overnight none of us would be any better or worse off), but the timing differences along the way. e.g. if my wages rise quickly with rising prices, and yours only rise slowly then you suffer much more than I do from inflation even if (after several years) we end up back with the same inflation adjusted wages and prices. In fact, I thought the whole point of money printing to combat deflation is to disrupt the feedback spiral. Print lots of money, make it freely available (as loans) to businesses. They can use the cheap credit as a cushion to withstand the lower profit margins brought on by lower prices without lowering wages (or firing workers). Steady employment and income means demand stays strong enough that prices need go no lower. Behold, equilibrium reestablished. (Cheap credit also helps consumers maintain consumption in the face of greater economic uncertainty which also helps maintain demand and stabilise price levels.) BWDIK? habit