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Inflation vs. Deflation

Started by pkamm, 08/06/2009 08:15PM
Posted 08/06/2009 08:15PM | Edited 08/06/2009 08:16PM Opening Post
Submitted for debate and amusement:

The case for inflation
1) M1 growth 17% last 12 months, M2 up 9%
2) Price of gold still showing strength
3) Deficits, bailouts and so forth

The case for disinflation
1) Shrinking consumer and mortgage credit
2) Collapse in commodity prices from last year (but for gold)
3) Baltic Dry Index chart showing signs of decay

Do they even out to some kind of 'middling' path? If not, which horse are you betting on? grin
Posted 09/03/2009 07:58PM #1
Paul Kammueller said:

Submitted for debate and amusement:

The case for inflation
1) M1 growth 17% last 12 months, M2 up 9%
2) Price of gold still showing strength
3) Deficits, bailouts and so forth

The case for disinflation
1) Shrinking consumer and mortgage credit
2) Collapse in commodity prices from last year (but for gold)
3) Baltic Dry Index chart showing signs of decay

Do they even out to some kind of 'middling' path? If not, which horse are you betting on? grin

Hi Paul

I revived this thread to ask a question about something you said earlier this summer--

"The money aggregates tell the story. M1 is growing furiously, especially paper currency itself (which is unusual in recent history) but M2 is going nowhere. Flooding the street with money is ultimately just a way to try to keep the wheels on the wagon and allow a historically high consumer debt load to slowly unwind. "

Wikipedia appears to classify cash as M0:

http://en.wikipedia.org/wiki/Money_supply

"M0: Notes and coins (currency) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves)."

OK, what are practical or psychological factors that would spur a recent increase of paper currency?

I can only think of one unimaginative explanation:

Simple accidents such as satellite failure or network crash can break credit cards for days or longer. I've experienced credit cards outages due to network crash. In addition, banks still routinely fail, and it is not inconceivable that even now we could have localized bank runs or bank holidays.

Long time wisdom of the paranoid: Stock at least a month's supply of food, water, fuel, and cash.

For years I've been dependent on the convenience of the debit card and would be lucky to find three bucks in the wallet. Recently began stocking a few $20 bills 'just in case'. Bank interest rates are a joke and therefore money in the mattress evaporates only marginally faster than money in a bank account-- And you can access cash in the mattress 24/7 even during internet outages or natural disaster.

However that seems too 'paranoid' reasoning to go mainstream? This doesn't seem adequate to explain a big growth of M0? Seems unlikely that a lot of citizens would spontaneously decide to stuff some cash in the mattress?

Surely there are more likely explanations for M0 growth?
Posted 09/11/2009 10:30AM #2
Add to case for Disinflation:

1. FED claims to have mechanisms to soak up the excees liquidity - no details however.
2. Lots of Capacity utilization.

My take -

Next 18 months - act as if no inflation. Past that, act as if there is inflation, possibly very very bad inflation.