Inflation or Deflation

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Submitted by treylane on January 22, 2008 - 2:47pm

I know most of the piggs are in the inflation camp, and the simpler cues seem to point that way (low interest rates = inflation), and I'm sure that The Wise and Mighty Fed is much more eager to spark inflation than deflation.

When looking at the situation further, a lot of the news seems to be deflationary. Bank write-offs affect how much they're able to lend, regardless of interest rates. Credit standards are tightening, so already-highly-leveraged consumers can't keep getting cash infusions. Consumers are hanging on to their money, and spent less this holiday season.

Are all these deflationary cues moot in the face of low interest rates? We just assume that Americans will always take low rates and run up the credit cards?

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Why not have both? Food and
Submitted by kewp on January 22, 2008 - 3:16pm.

Why not have both?

Food and energy costs are inflating against a deflating dollar.

Real-estate is rapidly deflating, however given that this is a collapsing bubble I don't think its an appropriate usage of the term. "Correcting" is more like it.

There's prettymuch always
Submitted by treylane on January 22, 2008 - 3:36pm.

There's prettymuch always some of both. :)

In this case, I can see prices for certain "essential" imports such as food and energy rising, while consumers hold their pocketbooks a little tighter and cause deflation prettymuch across the board.

Both is my opinion too. The
Submitted by pencilneck on January 22, 2008 - 4:56pm.

Both is my opinion too.

The problem with the classical deflationary argument is that it only works if the currency can hold value while the economy is doing poorly. A currency based on gold, for example, can do this.

The value of a currency based upon imagination and wishfull thinking can fall even while true deflation via debt destruction is occuring.

In Argentina, for example, they recently had a banking crisis that caused very much money to evaporate. This is deflationary in the monetary sense. However, as faith was lost in the currency(both nationally and internationally) the value of the currency dropped as well. Meaning that prices continued to rise even while deflation was occuring faster the ability to create new money.

The debt crisis in the U.S. is deflationary in the monetary sense. But we are also seeing both true inflation in other areas and a lack of confidence in the dollar.

Inflation for imports and
Submitted by bubble_contagion on January 22, 2008 - 7:38pm.

Inflation for imports and commodities, deflation for real state, services and US made products (the few left).

inflation for necessities
Submitted by bob007 on January 22, 2008 - 10:40pm.

inflation for necessities like food, energy

deflation for optional items like ipods, SUVs