(10-14-2009 11:41 AM)GGniner Wrote: the big debate right now is, Deflation vs. Inflation
evidence exist for both sides at the moment.
the perpetual Hyper-Inflation camp(see Peter Schiff) were caught completely off guard last year when Deflation set in.
Shouldn't have been. Deflation (and a subsequent depression) are classic when there's overproduction. We've had lots of overproduction, from imports (electronics, toys, etc) to cars (remember 3 year leases?) to houses.
But the real killer has been the move of US employees away from the productive to the unproductive. You can only shuffle papers and litigate for so long.
Now the Fed understands the deflation, and its causes. So it's trying to prop up the economy by releasing money: bailouts, TARP, stimulus, etc. That will lead to inflation, but the feds are hoping that goes unnoticed as it competes w/ the deflation.
While physics says those two vectors may cancel each other in a broad sense (no acceleration in either direction), the fact is that when two strong forces are applied to a single, given object (our economy) it's likely to have a destructive effect. (Crushing or tearing apart. Either metaphor is apt.)
But, the main reason the fed's approach won't work is that we aren't productive. You can only print money, and use it to buy cheap goods made from Asia, for so long. There's a point where even they don't want it. Ultimately that currency needs to have something behind it. Some goods or services to back it up. We're off the gold standard so take goods away. We don't do anything useful, so take services away.
And then inflation will take over. Add to that scarcity, as products do wear out (cars, unattended foreclosed homes) and it adds to the inflation.
The scale will rock back and forth a bit. As unemployment stays high and goes higher w/ stimulus money running out, people will be more broke. That will put pressure to keep prices down (think gas prices). But then producers will go out of business, or sell in better markets, and that will drive prices up.
In the end (and by that I mean over the next 3 years) we'll get past deflation and have devastating inflation, w/ high unemployment.
I figured deflation to last for about 1 more year. That may be best seen w/ high price goods (cars, houses) but I'm already seeing inflationary trends on daily products. If that's true, and both forces are currently in play, then things could get worse even faster.